44905
THE WORLD BANK GROUP WASHINGTON, D.C.
TRANSPORT PAPERS TP-19
April 2008
Preparing a National Transport Strategy
Suggestions for Government Agencies in Developing Countries
John Lee and John L. Hine
TRANSPORT
SECTOR
BOARD
PREPARING A NATIONAL TRANSPORT STRATEGY
Suggestions for Government Agencies in Developing Countries
John Lee and John L. Hine
THE WORLD TRANSPORT
BANK SECTOR
Washington, D.C. BOARD
� 2008 The International Bank for Reconstruction and Development / The World Bank
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Washington, DC 20433
Telephone 202-473-1000
Internet: www.worldbank.org
Published April 2008
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CONTENTS
Contents ............................................................................................................................... v
Acknowledgments............................................................................................................... vii
Abbreviations....................................................................................................................... ix
Preface................................................................................................................................. xi
1 What is a National Transport Strategy... and why have one?........................................... 1
1.1 What is an NTS? ............................................................................................ 1
1.2 Why have an NTS?......................................................................................... 2
2 Key steps in developing an NTS....................................................................................... 3
2.1 Who should develop an NTS and how? .............................................................. 3
2.2 Allocation of resources to the transport sector and to sub-sectors ......................... 4
2.3 Administrative resource and data constraints, and technical solution choices .......... 5
2.4 Consultation and transparency......................................................................... 6
2.5 Framing answers to the right questions ............................................................. 7
3 Components of an NTS .................................................................................................... 9
4 Objectives ..................................................................................................................... 11
5 Policy principles ............................................................................................................ 15
5.1 Institutional policies ..................................................................................... 16
5.2 Planning and investment policies.................................................................... 29
5.3 Operational, regulatory and licensing policies ................................................... 34
5.4 Pricing, cost recovery, taxation and subsidy policies.......................................... 38
6 Strategies for achieving objectives................................................................................ 43
7 What should the NTS look like? ..................................................................................... 47
8 Making the NTS work and measuring the strategy's effectiveness ................................ 49
8.1 Requirements for effective implementation ...................................................... 49
8.2 Measures of effectiveness.............................................................................. 49
8.3 Consultations and external scrutiny ................................................................ 49
Annex: Country National Transport Strategies reviewed..................................................... 53
References.......................................................................................................................... 55
v
vi CONTENTS
BOXES
Box 2-1. National transport planning models.............................................................................. 6
Box 2-2. Objectives, policies and strategies ............................................................................... 7
Box 5-1. Highway agencies ....................................................................................................17
Box 5-2. Significance of user costs in relation to road agency costs..............................................18
Box 5-3. Approaches to private provision of road infrastructure ...................................................19
Box 5-4. Securing value for money through PSP........................................................................19
Box 5-5. Alternative models of railway infrastructure and operations............................................20
Box 5-6. Separation of railway infrastructure and operations.......................................................20
Box 5-7. Average and variable costs........................................................................................21
Box 5-8. Railway concessioning ..............................................................................................21
Box 5-9. Unit transport costs by alternative modes, by distance ..................................................22
Box 5-10. Port management models .......................................................................................23
Box 5-11. Multimodal transport facilities...................................................................................25
Box 5-12. Importance of quality attributes of transport ..............................................................26
Box 5-13. Responding to changing markets ..............................................................................27
Box 5-14. Route/service franchising ........................................................................................28
Box 5-15. Key institutional reforms .........................................................................................29
Box 5-16. Technical standards ................................................................................................31
Box 5-17. Allocation of risks ...................................................................................................33
Box 5-18. Benefit of stakeholder participation in planning...........................................................34
Box 5-19. Urban bus route franchises ......................................................................................36
Box 5-20. Safety rating and license renewal .............................................................................37
Box 5-21. Measures to improve enforcement ............................................................................38
Box 5-22. Road damage and the structure of user charges..........................................................39
Box 5-23. Road funds............................................................................................................41
FIGURES
Figure 2-1. Strategy planning levels ......................................................................................... 4
Figure 3-1. NTS components: objectives, policies, strategies and plans.........................................10
Figure 8-1. Broad assessment of coverage of NTSs for the sample reviewed..................................51
TABLES
Table 4-1. Achieving objectives: How can transport initiatives help?.............................................13
Table 5-1. Policy principles and the kinds of questions they raise .................................................15
Table 6-1. Examples of strategies to achieve objectives..............................................................43
ACKNOWLEDGMENTS
The authors would like to thank the Bank peer reviewers: Paul Amos, Henry Kerali and Andreas Kopp
for their advice and guidance. We would also like to thank Julie Babinard, Anthony Bliss, Heinrich
Bofinger, Michel Donner, Gregoire Gauthier, Tsuskasa Hattori, Bert Kruk, Anna Piasecka and Maki
Tsumagari for their helpful suggestions.
The Authors. John Lee is an independent consultant. John Hine is a Senior Rural Transport Specialist,
working in the Transport Anchor unit of the World Bank.
vii
ABBREVIATIONS
2G Second Generation
3PL Third Party Logistics
AQU Air Quality Unit
BOO Build Own Operate
BOT Build Operate Transfer
EIRR Economic Internal Rate of Return
EU European Union
FIRR Financial Internal Rate of Return
FTAC Freight Transport Advisory Committee
GDP Gross Domestic Product
M&E Monitoring and Evaluation
MDG Millennium Development Goal
NPV Net Present Value
NTS National Transport Strategy
PAS People, Activities and Systems
PNG Papua New Guinea
PPIAF Public Private Infrastructure Advisory Facility
PPP Public Private Partnership
PRSP Poverty Reduction Strategy Paper
PSO Public Service Obligation
PSP Private Sector Participation
SOE State-Owned Enterprise
ix
PREFACE
Most governments find it useful to prepare a National Transport Strategy (NTS) document in order to
help guide the development of the country's transport system in the medium and long term. In this
way an NTS can help provide a framework for the development of detailed policy and legislation as
well as identifying investment priorities.
The purpose of this report is to assist policy makers and planners in developing countries in the
preparation of an NTS. The report highlights lessons that can be learned from NTSs developed by
different countries around the world. It draws upon transport strategy and policy documents from 23
countries and from a range of World Bank source material. The aim is not to provide a ready-made
strategy document but to identify relevant questions and choices that need to be considered in
preparing an NTS. At each stage of the development of the NTS, a checklist of considerations is given,
and, where appropriate, examples of good and bad practice are identified.
Within the report particular attention is paid to separately identifying Objectives, Policy Principles
and Strategies. Objectives express society's goals, which should reflect the general socio-economic
goals of the country--goals that are shared with other (non-transport) sectors. Policy Principles
represent the principles that should govern the pursuit of those goals. They are the guiding philosophy
for decisions within the sector. Strategies represent the ways in which goals are to be achieved in
line with the policy principles.
A wide range of policies relating to the sector as a whole and to different modes of transport are
considered in the report, covering topics such as investment planning, private provision of road
infrastructure, transport services, rail infrastructure and operations, ports and multi-modal transport,
route service franchising, pricing, cost recovery and taxation. In addition, a series of examples of how
strategies can be formulated based on objectives and policy principles are given.
Throughout the report, consultation and transparency in the preparation of an NTS are stressed. It is
believed that that an NTS is far more likely to be successfully implemented if the process of
preparation is open to public scrutiny.
It is observed that too often objectives are formulated in a way that implicitly embraces a certain
strategy (that is, shifting traffic from road to rail, privatizing state owned enterprises or building more
expressways) or that objectives are defined in purely physical terms such as the development of
transport capacity, rather than in terms of human or environmental welfare. By defining objectives in
this way, the range of solutions that can be adopted to meet the fundamental goals of society or solve
underlying issues becomes unnecessarily limited.
Other weaknesses identified in National Transport Strategies include:
� A tendency to focus too much on investment rather than institutional, regulatory and pricing
measures to achieve a desired result;
� A tendency to avoid taking a comprehensive approach towards dealing with poverty, safety
and environmental issues;
� Poor sustainability with regard to the environment, pricing and cost recovery.
The report concludes with a broad assessment of the strengths and weaknesses of NTSs reviewed for
the report.
xi
PREPARING A NATIONAL TRANSPORT STRATEGY
1 WHAT IS A NATIONAL TRANSPORT STRATEGY... AND WHY HAVE ONE?
Governments in many countries make public the strategies they intend to follow in developing and
managing the transport sector. For perfectly valid reasons, these rarely follow a common format--they
might emphasize different aspects of transport, for example, or have different kinds of target
readership, or deal with quite different transport systems--but several common types of issues need
to be addressed if the resulting strategy is to be useful and effective.
The purpose of this report is to highlight the lessons that can be learned from efforts around the world
to develop a National Transport Strategy (NTS).1 It does not provide an off-the-shelf NTS; instead, it
identifies the questions that need to be asked and the choices that need to be made in framing an NTS
that suits the circumstances of the country in question. The report draws upon documents from a
range of countries and from World Bank sources relating to the Transport sector.2 At each stage it
offers a checklist of considerations and, where appropriate, examples of good and bad practice that
may help those facing choices. Its aim is to encourage policy makers and planners to adopt a
structured approach to assessing sector shortcomings, defining goals and mapping out the steps
needed to achieve these.
All transport modes--road, rail, maritime, air and waterway--are covered, but one of the report's
themes is consistency in the rules applicable to them all to encourage an economically efficient
allocation of investment and other resources.
1.1 What is an NTS?
There is no single "best" NTS--countries differ in their level of development and rates of economic
growth, the structure and characteristics of their transport systems, the patterns of demand and
needs of transport users, the respective roles of government and private sectors, and their
governments' overall philosophy and priorities. As this review has found, countries' approaches in
preparing an NTS also differ: some discuss individual transport modes (road, rail, maritime, urban and
so on) separately, some are written with a particular theme in mind (for example, poverty reduction,
rural accessibility, international linkages), others justify the activities of a government ministry, others
again might be intended to serve as a blueprint for sector-wide reform. By no means will every
country want to tackle all the questions raised in this report. Even so, despite the different, underlying
aims, good NTSs share some fundamental features:
� A set of basic objectives;
� A set of principles to guide the efforts to meet these objectives;
1 An immediate difficulty, of course, is that the success of different NTSs, in terms of sector outcomes, cannot
easily be assessed by a broad review such as this. Lessons can only be drawn about how well selected examples
clarified objectives, issues and choices, and gave useful guidance to decision-makers.
2 See http://www.worldbank.org/transport.
1
2 PREPARING A NATIONAL TRANSPORT STRATEGY
� An assessment of the adequacy of existing arrangements in the sector in relation to both of
the above;
� A set of strategies for addressing shortcomings and meeting the objectives in accordance with
the policy principles, and within the funding and institutional constraints that are expected to
prevail;
� A set of prioritized actions--plans--that are key steps in implementing the strategies;
� A set of procedures to be used to check whether the strategies and plans are implemented in
ways that are conducive to achieving the objectives in accordance with the policy principles,
defining the level of involvement of central government at the sub-national level (regions,
cities, and so on).
1.2 Why have an NTS?
AN NTS can be useful in:
� Helping people to understand the reasoning behind their government's decisions and actions
in the sector by explaining the government's goals and the principles that guide it;
� Showing how actions in different policy areas are linked in pursuit of common goals;
� Guiding decision-makers by showing them the context of their actions and their expected
progress towards specific objectives (thereby also providing the basis for a system of
monitoring and accountability);
� Helping to ensure consistency in the application of policy principles across all transport sub-
sectors and in pursuit of different objectives;
� Helping to identify gaps and shortcomings in existing policies and strategies, thereby flagging
priorities for addressing them.
2 KEY STEPS IN DEVELOPING AN NTS
2.1 Who should develop an NTS and how?
Countries approach the task in different ways, depending on their administrative systems and the
intended purpose of the NTS. Some link it to the process of developing multi-year national
development plans. China, for example, bases national socio-economic development on five-year
plans and, although its strategies for transport are produced by different ministries (the Railways
Ministry is separate from the Ministry of Communications, which is responsible for the other modes),
these are consistent with a broader strategic framework. Others (for example Fiji, New Zealand,
among many) tend to produce them when there is a change of government and of policy priorities.
There are also differences between "top-down" and "bottom-up" approaches. In small countries like
Bhutan or Guyana, with few levels of administration, the national government tends to prepare a
(top-down) plan for implementation by weaker, lower-level administrations or sectoral agencies. In
other countries, a (bottom-up) plan emerges as a compilation of proposals made by local and regional
administrations. Others again combine the two, often in an iterative process that may take several
months, because it serves as a blueprint for multi-year plans and provinces and local governments
have considerable responsibilities for infrastructure development and management. China's plan, for
example, represents a mix of the two approaches, the result of extensive consultations over local and
national policies as well as priorities.
There can be drawbacks to each approach. A top-down NTS lacks the flexibility to identify and adjust
to local needs at the implementation stage. A bottom-up approach often results in a "shopping-list" of
projects without a consistent policy framework. A plan that is fixed for many years can lack flexibility
in responding to unforeseen changes in circumstances.
Ideally, even for countries with quite different administrative structures, the NTS should represent a
consensus of views on the way forward (Figure 2-1): the views of national-level governments on the
basic objectives and principles of sector policy; the views of lower-level governments on the most
suitable ways of meeting the needs of their constituencies; and the views of the different stakeholders
at each level.
3
4 PREPARING A NATIONAL TRANSPORT STRATEGY
Figure 2-1 Strategy planning levels
National Issues and National Objectives,
Aspirations Policies and Strategies
d
Gui ance Feed back ersd
ol
Regional Issues
(largely of local Regional Objectives and akeh
coordination) Strategies St
of
sw
Guid ance Feed back Vie
Local Needs Local Objectives and
Priorities
The mechanism for developing an NTS, therefore, should provide for inputs from each administrative
level and for a process of review, revision and feedback. Sometimes this throws up conflicting
objectives and priorities--a useful output of the consultation process. For countries whose systems
dictate a top-down approach, the guidance and coordination from central government will be strong;
in those that use a bottom-up approach, the mechanism for developing an NTS will serve mainly to
give a consistent framework for local plans and priorities.
2.2 Allocation of resources to the transport sector and to sub-sectors
The allocation of government budgets among different sectors and sub-sectors is clearly a vexed issue
for which there is no simple and easy solution. Inevitably, a host of economic, social, environmental
and strategic considerations may be taken into account before political decisions are made on
budgetary allocation. Nevertheless, in developing a National Transport Strategy, a clear stance should
be taken on whether the transport sector as a whole has sufficient resources in comparison with the
competing claims of other sectors and whether the balance of resource deployment between different
transport sub-sectors needs adjusting. There is a range of ways for finding guidance on allocation
issues. The principal methods are as follows:
� Cross-country comparisons. These provide an indication of where the country stands, vis-
�-vis other countries with similar characteristics and levels of development. The analysis can
be based on factors such as the size of infrastructure or volume of service (per person, per
unit of GDP, per unit of area, per vehicle and so on), their accessibility to the population (that
is, average distance to the road network), and the amount and composition of expenditures
going to different forms of investment, service provision and maintenance.
Key Steps in Developing an NTS 5
� Economic internal rate-of-return (EIRR) analysis. Project appraisal documents and
sector studies that include strategic, programming and network analysis often provide
economic rates-of-return data for investments in the transport sector. In analyzing this data,
it is important to look at the rates of return of marginal projects (that is, the best projects that
have been omitted or delayed because of shortage of funds, or the projects with the lowest
rates of return that have been included in the program). So, data relating to marginal projects
are more important from a budget allocation point of view than those that relate to the best,
or to average, projects. If there are large differences among different sectors (or sub-sectors)
in the rates-of-return of marginal projects, then there may be grounds to consider the
reallocation of resources. However, it should also be remembered that for each type of project
there are appraisal conventions that will often ignore both externalities and income
distribution effects. Hence, rates-of-return relating to different types of project are not
automatically comparable. Nevertheless, a rate-of-return of analysis can provide important
lessons. For example, road maintenance has been found to give very high rates-of-return, yet
it is rarely properly funded.
� Impact evaluation studies. Impact evaluation studies that look at the past or existing
investment projects can provide an indication as to how different types of investment projects
meet their overall objectives. Most often, these studies analyze the effects of particular
investment projects. However, they can also be based on statistical analysis to determine the
effect of regional or national programs. Past evaluation studies can often provide a wider look
at project impact than the conventional economic cost-benefit project analysis. Social,
environmental, and to some extent multiplier effects (that is, the effects on the wider
economy) can be investigated. Although it is not so straightforward to draw conclusions about
budget allocations compared with rate-of-return calculations, the studies can provide some
insights into what type of projects have been most successful.
� The achievement of government targets. Guidance on allocation can also be based on the
degree to which access to infrastructure and associated services meet recognized government
objectives and targets. For instance, if targets are close to being met for some sectors or sub-
sectors, but are clearly far from being met in others, this may be an indication that more
resources should be allocated to those that are deficient.
2.3 Administrative resource and data constraints, and technical solution choices
The choice of any technical solution used in preparing an NTS depends upon available administrative
resources, and whether detailed analysis is needed to resolve key policy choices or expenditure
options. The effort devoted to preparing an NTS should reflect the complexity of the policy and
investment choices faced. Even for small countries with limited resources, a detailed analysis may
sometimes be needed before critical choices can be made on, for example, the best way to organize
and subsidize essential services to isolated regions, or set priorities among several alternative
transport corridors or between road and rail transport. Often, these choices can be resolved by the use
of national or regional transport planning models (Box 2-1). In other cases, even for large countries
like China, the decision-making process, the division of institutional responsibilities among ministries
and the iterative top-down/bottom-up approach to assembling plans in each sub-sector might make it
unnecessary to carry out complex analyses of inter-modal or investment choices. In practice, whether
or not a complex analysis of issues and options is necessary will depend on how contentious or difficult
the choices are, on the degree of unanimity within government over the options, and whether it is
needed to convince investors, doubters or the general public.
6 PREPARING A NATIONAL TRANSPORT STRATEGY
A major issue facing transport planners in many low- and middle-income countries is the general
inadequacy of basic data on the transport sector. In this respect, the transport sector usually lags well
behind other sectors such as agriculture, which usually has a well-funded department collecting data
and regularly publishing basic statistics. Too often, the main sources of data, particularly for the
dominant road sub-sector, lie in "one-off" investment appraisal reports and specific studies. For many
countries, main road traffic counts and condition surveys are the only nationally organized road
transport data collected on a regular basis. National household surveys tend to ignore transport
indicators such as the Rural Access Index, or the share of household expenditure on transport and
household trip making. Often, very little is known about the incidence of trip making, trip origins and
destinations, road accidents, transport tariffs, commodity composition, rural and urban transport (both
for infrastructure and services) and the main characteristics of the vehicle fleet. Most of these data are
crucial to monitoring the overall performance of the sector and consideration should be given to
finding resources to collect such data on a regular basis. It is also important to involve and encourage
national statistical institutions to undertake regular transport surveys and integrate transport
indicators into household surveys.
2.4 Consultation and transparency
The benefits of an NTS are more likely to be Box 2-1 National transport planning
models
realized if the process of preparing and monitoring
its implementation are open to scrutiny. National or regional transport planning models
Governments generally benefit from feedback when are often useful in comparing the consequences
they are open about their goals and their plans for of alternative scenarios for investing in transport
achieving them. The process of preparing an NTS, capacity. In simple terms, they involve
forecasting future transport demand between
therefore, should provide for: origins and destinations and assigning this to
alternative network paths depending on the
� Consultation with all interested parties-- characteristics of individual links and nodes,
which in turn depend on the price, available
industry associations, transport service capacity and other factors affected by policy or
providers and their customers, non- investment. The scenarios are usually compared
transport ministries (those responsible for on the basis of costs and benefits (savings in
transport costs and travel times) over the
planning, regional development, trade, planning period.
industry, competition, environment, social In practice, it is often difficult to maintain
welfare, and so on), local governments, complex transport planning models as an up-to-
academia and other stakeholders-- date planning tool because specialized knowledge
is required, the data requirements can be very
preferably through a permanent large and the data expensive to collect. After the
consultative body such as an advisory initial effort, they often tend to fall into disuse.
council;
� Open discussion and scrutiny of NTS issues, options and proposals with stakeholders, giving
the public and the media ample opportunities to comment on and access relevant information
through press releases, newsletters, discussion forums and/or a website;
� Procedures for monitoring performance against specific targets, preferably by independent
(that is, non-government) reviewers;
� Arrangements for updating or adjusting the NTS in the light of changed circumstances or
priorities.
Good examples of the above approach include South Africa3 and a growing number of countries that
use a website to encourage review and feedback (for example Swaziland4). Developed countries also
3 http://www.transport.gov.za/library/docs and http://www.polity.org.za/govdocs/white_papers/transwhite.html.
Key Steps in Developing an NTS 7
provide useful examples of interactive and informative policy formulation and planning.5 Section 8.3,
at the end of this report, gives some suggestions to help establish effective arrangements for
consultation and transparency.
2.5 Framing answers to the right questions
The approach suggested in this report follows a set of key questions facing policy makers and planners
along the lines indicated earlier in Section 1.1; What are the overarching objectives we want to
achieve? What fundamental policy principles should guide our efforts to achieve these objectives?
What are the shortcomings in existing arrangements, both now and in the future--that is, to what
extent do they fail to meet these objectives or apply these policy principles? Given forecast demand,
the identified shortcomings and the investment and institutional resources likely to be available over
the planning period, what strategies are likely to be most effective in achieving the objectives in
accordance with the policy principles? What are the most important first steps in implementing these
strategies?
While transport administrations do not necessarily
follow these logical steps explicitly, even the Box 2-2 Objectives, policies and
simplest strategy generally includes an strategies
assessment of needs, a statement of objectives
and an outline of strategies for achieving them.6 Objectives express society's goals.
Policies express the principles that should govern
Those without an NTS would benefit by adopting the pursuit of those goals.
the objectives > policy principles > shortcomings Strategies are the ways in which goals are to be
> strategies > implementation approach achieved in accordance with the policy principles.
suggested in this report, even if it need only
apply to a subset of the issues discussed below.
4http://www.gov.sz/home.asp?pid=1231.
5See, for example, Department of Infrastructure, Transport, Regional Development and Local Government,
Australia (http://www.dotars.gov.au/index.aspx)
6Examples: Bhutan (reviewed in World Bank, Bhutan � Transport Sector Note, Report No. 28522-BHU, August
2004); British Virgin Islands (http://www.dpu.gov.vg/Plans/NIDS/Transportation).
3 COMPONENTS OF AN NTS
The links among the components of an NTS--objectives, policy principles, strategies and plans--are
shown in Figure 3-1, which also introduces a suggested classification of policy topics, discussed below.
There are several advantages to structuring an NTS this way, even to the extent of using the graphic
format shown. It illustrates clearly how actions in each policy area (institutional, planning, operational
and so on) combine to produce intended outcomes, and the links among them. It also encourages
consistency in applying the policy principles across modes and in the pursuit of each objective.
Policy principles guide the pursuit of objectives. Like objectives, they will vary between countries--
those of a socialist government, for example, will differ from those of a country that tries to minimize
government intervention in a market economy--but they should at least be capable of answering the
following types of question:
Institutional policies
What are to be the respective roles of government and the private sector in developing
and operating transport infrastructure and services? What limits, if any, are to be put
on the role of each?
What are to be the respective roles of central government, other levels of government,
and public authorities?
How should public sector functions--for example those of policy formulation, planning,
regulation, investment, and operations--be organized?
Planning and investment policies
What planning, environmental, safety, economic and/or financial criteria are to govern
public investments in transport infrastructure, facilities and services?
What controls (for example permit requirements, restrictions on foreign investment)
should apply to private sector investments?
Operational, regulatory and licensing policies
What is the role of regulations, and what regulatory or licensing controls should be
imposed over transport infrastructure and service operations?
To what extent should competitive markets in transport infrastructure and services be
encouraged? How should they be established, maintained, monitored and/or
controlled? What about situations where public and private services compete?
How can transport services and infrastructure promote development? How can we curb
congestion and increase city competitiveness?
How should public safety and the environment be protected?
How can we reduce the risk of transmission of HIV/AIDS within transport projects and
transport services?
How should regulations be imposed or enforced in a way that is effective, minimizes
costs to transport operations, and allows responsiveness to demand? How can corrupt
practices be eliminated?
What incentives or other measures should be used to complement regulatory controls
over transport operations?
9
10 PREPARING A NATIONAL TRANSPORT STRATEGY
Pricing, cost recovery, taxation and subsidy policies
What principles should govern tariff setting for publicly owned transport infrastructure
and services? What controls, if any, should be applied to private sector tariffs, and
under what conditions?
What level of cost recovery is to be achieved for publicly owned transport
infrastructure? How should charges be structured to recover costs? How should deficits
be financed? What should be done with surpluses?
What is the role of pricing, cost recovery and taxation in relation to competition among
transport modes? What types and levels of taxation should apply to public and private
transport infrastructure and services? Under what circumstances might exemptions or
concessions be applied?
Under what circumstances would government subsidies be considered justified? How
would they be applied and managed?
Figure 3-1 NTS Components: Objectives, Policies, Strategies and Plans
Institutional Planning & Operational, Pricing, Cost-
Measures Investment Regulatory & Recovery,
Measures Licensing Taxation &
Measures Subsidy
Measures
Analysis of Existing
Shortcomings
Strategies to
Achieve Objectives
Strategy 1.1 Plans
Objectives
Strategy 1.2
Objective 1
etc.
Objective 2 Strategy 2.1
etc.
Objective 3
etc.
Short-Term
Plan
Medium-Term
Plan
Policy
Institutional Planning & Operational, Pricing, Cost-
Principles Long-Term
Policies Investment Regulatory & Recovery, Plan
Policies Licensing Taxation &
Policies Subsidy
Policies
4 OBJECTIVES
Objectives should reflect the socio-economic goals of the country in question--goals shared with
other (non-transport) sectors. They should not be stated in a way that presumes the best way of
achieving them--that is the purpose of a strategy. Examples of good objectives might refer to the
standard Millennium Development Goals (MDGs), which include goals such as eradicating extreme
poverty; promoting gender equality and empowerment of women; achieving health and education
targets; and ensuring environmental sustainability. Other goals could be the efficient use and
allocation of resources; sustainable financing; equity, or fairness; affordability; quality of life; public
safety; an efficient, effective and responsive public administration. Poor examples--since they also
imply a strategy--would be: shifting traffic from road to rail, or from peak to off-peak periods;
subsidizing rural transport; reducing fuel consumption; privatizing state-owned enterprises (SOEs);
lowering the speed limit; banning heavy vehicles; building more expressways; separating regulatory
and commercial functions. A common failing among the NTSs reviewed is to define objectives in purely
physical terms--especially the development of infrastructure or transport capacity--and not in terms
of human or environmental welfare.
Addressing user needs. It is important to recognize that objectives can conflict with one another,
and that different groups may have different views about which are the most important. It is,
therefore, worth spending time discussing and elaborating them, resolving choices among them when
they appear to conflict and--most importantly--linking them to the government's overall objectives
and priorities for socio-economic development. A good starting point is the Poverty Reduction Strategy
Paper (PRSP) prepared by many countries.
Transport services should be delivered in a way that responds to the different and specific needs of
users. Transportation is vital for breaking out of poverty. However, in many low-income countries,
there are still major shortcomings and disparities in the availability and quality of transport services.
For example, women tend to have less access to motorized services than men. There are also issues
of violence and security in the streets and on public transport, which place particular constraints on
women's mobility. People with disabilities--particularly those who are visually impaired or cannot
move around easily--are often denied access to essential transport services and are thus prevented
from attending school, having a job, or receiving medical treatment.
The availability of transport services for the poor, women, and other disadvantaged people has
emerged as an important issue in the context of a number of transport policies. It requires the
removal of institutional and physical barriers and the enhancement of incentives to increase the
accessibility of diverse individuals and groups to transport opportunities. A transport strategy for all
users should consider issues of urbanization and access to safe and efficient transport services for
economic empowerment; socio-economic consequences linked to increased mobility; how users can
contribute to the planning and development of transport services; and how transport can also be a
source of business and incomes for the poor, including women.
Mitigating social and environmental risks. There are important social and environmental risks
relating to planning decisions about transport systems. In the urban context, transport can be a
significant contributor of noise, community disruption, consumption of open space and degraded air
quality. Transport is the fastest growing source of CO2 emissions and continued expansion of vehicle
ownership and road traffic lead to high concentrations of air pollutants in the atmosphere, with serious
respiratory and other health effects for the population, particularly in urban cities. Increasingly, many
of the leading causes of death (high blood pressure, high cholesterol, and obesity) in developing
countries are related to transport activity and associated lifestyle patterns that result in reduced
11
12 PREPARING A NATIONAL TRANSPORT STRATEGY
physical activity. There are significant direct health costs associated with road accidents--an estimated
1.2 million people dying each year in road accidents and up to 50 million people being injured
annually--disproportionately affecting the poor. In addition to road injuries, strong evidence links
transport routes to the spread of HIV, suggesting that the sector is a major vector of the disease.
Likewise, transport sector workers are vulnerable to the disease because of their high-risk behavior at
truck stops and border towns, with the potential to have an impact on the effectiveness and reliability
of the sector.
Designing transport systems to improve the condition of the poor implies anticipating the possibilities
of socially and environmentally undesirable consequences. A transport strategy should seek to
optimize the social and environmental benefits of the sector's policies and investments, while
minimizing negative impact, and to plan for measures of amelioration and control. An environmental
and social focus in a transport strategy could include principles for transport safety (road safety,
aviation safety, improved passenger comfort and safety in urban transport projects); the mitigation of
HIV/AIDS; emergency transport for health access; and appropriate policy responses to the physical
and economic linkages among transport and energy efficiency, vehicle emissions, public health impact
and long-term greenhouse gas outcomes.
Although objectives should not presume strategies, the very task of formulating them encourages the
planner to think about how they might be achieved: What contribution can the transport sector make
towards achieving this objective? What complementary measures might be necessary? Table 4-1
illustrates this process.
By their very nature, objectives tend to be "motherhood" statements--society's aspirations.7 So, in
order for them to have value for an NTS, it is best to link them to quantifiable targets. Setting
quantified targets allows government and external reviewers to measure progress on, and test the
effectiveness of, the NTS. Some guidelines on quantifiable measures associated with objectives are
listed in Section 8.2.
7 For this reason, it is inappropriate to suggest what they might be, or even to quote examples of what might be
considered "best practice." Just about every NTS reviewed for this report (see Annex A) includes a statement of
objectives. Unfortunately, many such statements veer into the realm of policies and strategies, particular in
smaller, less developed countries, where physical infrastructure is poor and embarking on physical projects is seen
as an aim itself.
Objectives 13
Table 4-1 Achieving objectives: How can transport initiatives help?
Possible Questions to be addressed
Objectives
Sustained How can transport initiatives best help achieve economic/income/trade growth? What are
economic existing shortcomings in the transport system? Congestion and lack of capacity? Lack of
growth adequate infrastructure? Inadequate maintenance? Inefficiencies in existing services? Is
investment needed in new facilities and services or greater efficiency in existing services?
How can investment be sustained? Are there market rigidities requiring deregulation,
allowing services to respond more effectively to demand? Are transport modes failing to
exploit their intrinsic advantages? How can a more level playing field be established among
modes?
Efficient and How best can transport markets respond to users' needs? Are they constrained
demand- unnecessarily by regulations or market rigidities? Are there unnecessary restrictions on
responsive market entry, operations, prices or service quality? Is competition effective in lowering
services prices and improving service quality? Does the industry structure limit opportunities for
higher-quality, more efficient services to develop? Do operators have adequate management
capability and access to funds for investment?
Sustainable Is funding for infrastructure development and maintenance adequate and sustainable? How
financing and can it be made more reliable? Are construction and maintenance standards cost-effective?
maintenance of Do users face charges that recover their attributable costs? Are the revenues channeled into
public improving maintenance? Is life-cycle management of maintenance effective? Are alternative
infrastructure solutions--for example performance-based contracts, outsourcing to an autonomous agency,
privatization, community-based maintenance--likely to be more effective?
Poverty How best can transport initiatives improve access for the poor and isolated? Is infrastructure
reduction, providing adequate reach? Are there adequate employment opportunities for women in
equity and construction, maintenance and service provision? Are service-licensing regulations or tariff
affordability controls limiting the development of low-cost services? Could deregulation lead to greater
competition, more flexible services and greater productivity? Are there essential services
that would justify a subsidy? What is the most effective way of subsidizing these services?
Quality of life, How effective are controls designed to protect public safety and the environment? Are
safety and management systems in place to assure the safety of transport infrastructure and services?
environmental Are safety enforcement procedures effective? How can they best be improved? Is corruption
protection a problem? Are alternative measures, for example outsourcing of enforcement, pricing
policies, incentives, education, likely to be more effective? Are there adequate regulations
and policies in place to address HIV/AIDS issues both in construction and in the provision of
services? Are transport facilities adequate for people with disabilities? Are there effective
transport solutions that can help reduce greenhouse gas emissions and help the government
meet internationally agreed targets to reduce global warming and climate change?
Efficient, Do existing administrative agencies provide efficient service? Are they following set
effective and objectives and held accountable for their performance? Is decision-making transparent and
responsive open to external scrutiny? Do stakeholders have a say? Would administrative functions be
public more efficient/effective if competitively outsourced?
administration
5 POLICY PRINCIPLES
Policy principles are by no means "motherhood" statements, even though they too express
aspirations and differ from one country to another. They provide the guiding philosophy for decisions
in the sector. They require clear-headed thinking and often also special studies to resolve complex
choices among alternatives. They are especially important if the sector is undergoing reform and the
necessary adjustments involve radical change, with some groups gaining and others losing by the
changes being made. The kinds of questions to be answered are illustrated in Table 5-1.
Table 5-1 Policy principles and the kinds of questions they raise
Policy Questions to be addressed
Principles
Institutional policies:
Roles of public What are the limits to the government's role in the sector? Should it play a greater or lesser role
and private in developing or operating infrastructure and services? Is its involvement resulting in
sectors inefficiencies or limiting opportunities for the private sector? Should it be confined to policy,
planning and regulatory matters? Should it provide essential services itself?
Organization Does the present administrative structure work efficiently and effectively? Are there incentives
of for effective performance? Should selected functions be assigned greater autonomy and
government accountability? Might there be advantages in establishing separate regulatory authorities?
functions
Planning and investment policies:
Criteria for Do existing procedures for long/medium/short-term planning enable decision-makers to
public anticipate future capacity requirements? Are planning/investment principles/criteria applied
investments consistently across all sub-sectors? What are the minimum criteria for economic and financial
return? Are projects required to meet specific environmental and safety standards? Can a case
be made for advance provision of infrastructure to promote growth?
Controls on Are there areas where private sector investment is not encouraged? Why? Is there an adequate
private sector legal framework governing Private Sector Participation (PSP)? Are there procedures for dealing
investments with unsolicited proposals? Is there a risk of private monopoly? Do PSP guidelines encourage
competitive tendering for investment opportunities? Do concession agreements adequately
identify and allocate risk?
Operational, regulatory and licensing policies:
Role of What is the perceived role of regulations? Is their aim to facilitate competitive markets, protect
regulations safety and environmental standards and/or guide and control services? Do service/route
governing licensing conditions limit market entry and competition or encourage them? Is there a procedure
infrastructure for reviewing regulatory impacts and effectiveness? Are licensing and regulatory controls
and effective in achieving their aims? If not, why not? Is the cost of regulation adding unnecessarily
operations to the cost of transport?
Protection of How effective are existing measures in protecting public safety, infrastructure and the
public safety, environment? Are agency responsibilities and accountabilities for safety performance clearly
infrastructure defined? What are the main factors contributing to accidents? Apart from stricter enforcement,
and the are alternative ways of achieving safety or environmental objectives--for example through
environment incentives or pricing policy--being tried? Are there better ways of penalizing poor safety
performance or reducing air pollution and greenhouse gas emissions?
Enforcement How effective is the enforcement of safety/environmental regulations? Is corruption a problem?
of regulations Would decentralization or outsourcing of enforcement be more effective? Could more onus be
placed on the operator, for example by linking safety/environmental performance with the
issue/renewal of operating licenses?
15
16 PREPARING A NATIONAL TRANSPORT STRATEGY
Table 5-1 Policy principles and the kinds of questions they raise
Policy Questions to be addressed
Principles
Pricing, cost recovery, taxation and subsidy policies
Principles for Are prices/tariffs set by the market or by regulation? Are price controls effective in achieving
tariff setting their aims? Do they have negative consequences for investment, innovation and service
and taxation; standards? What rules should govern when price controls are imposed? How should they be
price controls set/adjusted?
for private
sector
services
Cost recovery What should be the target level of cost recovery for public infrastructure? What principles should
for public govern this? How should cost-recovery charges be structured? Should concessions apply? Do
infrastructure user charges also relate to objectives of capital financing and/or fleet restructuring? What should
be the relationship between direct user charges and other fees/taxes imposed on users?
Pricing and Is pricing a tool for achieving objectives in relation to inter/multi-modal transport and the role of
inter-modal the respective transport modes? What principles should govern relative prices among modes?
competition
Subsidy policy Is there a role for subsidies? Under what conditions? Are they more effective in meeting goals
than alternative measures to lower the cost of essential transport services? What form of
subsidy is most suitable--cross subsidies, more targeted support or franchise arrangements?
5.1 Institutional policies
The role of government in providing transport infrastructure and services
The first of such questions is a key one: what are to be the respective roles of the public and private
sectors in providing and operating transport infrastructure and services?
Infrastructure
Under what circumstances should the government provide transport infrastructure or continue to
operate infrastructure it once provided? In many--indeed most--countries, roads, sea and river ports,
public transport terminals, railways and airports, as well as safety-related infrastructure like
navigational aids, continue to be the responsibility of central or regional governments. Other countries
have privatized selected facilities or outsourced their provision or management to the private sector.
Which is best?
The answer is that either can result in well-planned and efficiently-managed infrastructure, provided it
incorporates appropriate incentives and monitoring arrangements that encourage effective
management, efficient performance in pursuit of defined goals and an adequate and reliable source of
funding.
Roads are usually built and managed by governments, but there has been recent interest in private
provision, particularly of higher-class roads, and private maintenance of public roads under
performance-based contracts. Where governments choose to retain responsibility, they sometimes
delegate the task of building new roads and managing existing ones to a more autonomous highway
agency or state-owned enterprise; India's National Highways Authority and South Africa's National
Roads Agency are examples. This is done to bring a more independent, business-like approach to road
asset management, and to insulate the task from bureaucratic civil-service rules and fluctuating
government budgets. Such arrangements can benefit from an arm's-length relationship between the
Policy Principles 17
government (as the owner) and highway agency (as the service provider), allowing the government to
hold the agency accountable for its performance in managing the network (Box 5-1). Similar benefits
can be derived from assigning responsibility to a private sector enterprise under contract.
Box 5-1 Highway agencies
Even in the developed world, countries differ in their approach to highway management:
� In the UK, the Highways Agency manages the 10,000 km trunk road network on behalf of the government,
from which it receives an annual budget. It is accountable to the Ministry of Transport for implementing
annual and 3-5 year business plans.
� New Zealand outsources most functions other than policy formulation. It has corporatized and privatized its
planning, design, construction and maintenance units, retaining only regulatory controls and a strict system
of accountability.
� Australia has a federal structure, with most functions being the responsibility of the states and corporatized
to a large degree. The National Transport Council acts as a policy coordinating body.
� In an attempt to reduce government deficits, Italy relies largely on individual project concessionaires to
develop and manage its national network.
� Japan had to establish a refinancing agency to manage the large debts of its four previous public road
corporations; it aims ultimately to revert to public sector management and to remove tolls.
� South Africa places emphasis on its corporatized National Roads Agency, funded mainly through
government budget, but with commercial toll roads and some other functions competitively outsourced.
� Sweden relies on a more traditional public sector model, but with regional implementing agencies competing
for contracts awarded by a road management division, which is held responsible for network performance.
Government-managed road networks suffer from having to compete with other sectors--education,
health and others--for scarce resources. The result is almost invariably a lower-than-optimal level of
maintenance funding and consequently increased costs for road users. These additional costs, the
result of rougher pavements and lower speeds, generally far outweigh the "savings" from skimping on
maintenance. Over the life of a pavement, road user costs far outweigh the costs incurred by the road
agency (Box 5-2).8 A good rule of thumb is that for every dollar "saved" on maintenance, road user
costs rise by about three dollars. One of the most important priorities for any highway agency, public
or private, is to provide adequate resources for effective maintenance--ideally, a level that minimizes
discounted road-agency and user costs over the life of each road. In seeking to ensure more reliable
funding for road maintenance, some countries have introduced road funds. These are discussed in
Section 5-4.
Almost all the road-related NTSs reviewed for this report identify better road maintenance as a critical
priority. Many countries, however, fail to provide sustainable arrangements for funding and managing
road maintenance. Several (for example, Papua New Guinea, Fiji) have committed to special road
funding arrangements (including road funds) but have experienced difficulties in implementing them.
8Even for roads carrying little traffic, the cost of skimping on maintenance, which can include loss of access in
certain periods of the year, usually outweigh the apparent savings.
18 PREPARING A NATIONAL TRANSPORT STRATEGY
Box 5-2 Significance of user costs in relation to road agency costs9
of
geat
enc 100
perasasts
cognitar tssoctropsnartlatto 75
50
25
opeecl
ehiV 0
0 1,000 2,000 3,000 4,000 5,000
Initial average daily traffic (number of vehicles)
Shortages of funds for construction, as opposed to maintenance, have given rise to interest in Private
Sector Participation (PSP) of road infrastructure, usually tolled expressways or bridges. Approaches to
PSP vary between countries--from simple outsourcing of individual tasks (design, construction,
supervision, operational management, financing) to variations on the BOT (Build Operate Transfer)
model (Box 5-3), in which the private sector contracts to finance, build, manage and operate the
project for a period in return for a share of toll revenues or a schedule of payments from the
government ("shadow-tolling"). Small developing countries, however, have not rushed to implement
PSP projects, often lacking the institutional capacity to handle them effectively. Private sector finance
is generally more expensive than government borrowing or bonds, so models relying on it need to
offer other benefits to make them worthwhile: greater cost certainty, expedited implementation,
greater efficiency, higher quality, innovative technology, specialized expertise, and so on. Private
provision of infrastructure can sometimes bring forward projects that would otherwise have to wait for
government budgets, as well as bring an entrepreneurial, profit-oriented approach to highway
development, management and operation. But PSP is not a universal panacea; in several countries its
benefits are being questioned. A strategy for PSP should be based on a careful comparison of value �
for money offered by each approach, weighing the PSP option against a "public sector comparator",
the alternative involving government financing, implementation and management, with outsourcing of
selected tasks where appropriate (Box 5-4). This is a complex task, which requires technical
assistance from specialists.
The benefits of PSP in road infrastructure, whether in outsourced construction, maintenance or
operational tasks, or through more independent BOT-like models, will be at risk, however, without
two key features; (i) open, transparent competition among potential service providers to ensure that
the best one is chosen (as measured against clear selection criteria); and (ii) a system for monitoring
and holding service-providers accountable for their performance.
9This plot is reproduced from a study carried out in the 1980s that drew attention to the economic costs
associated with neglect of road maintenance: Road Deterioration in Developing Countries, World Bank Washington
DC, June 1988.
Policy Principles 19
Box 5-3 Approaches to private provision of road infrastructure
Corporatization & Privatization Options
Public supply and operation
Outsourcing
Corporatization and performance agreements
Management contracts
s
Leasing onisse
Franchise oncC
Concession
Build-operate-transfer (BOT)
s
Build-own-operate (BOO)
iontaiz
Divestiture by licence atvirP
Divestiture by sale
Private supply and operation
Source: Guasch JL, Granting and Renegotiating Infrastructure
Concessions � Doing it Right, WBI Development Studies, World Bank,
2004
Box 5-4 Securing value for money through PSP
Involving private management and finance is usually more expensive and takes longer to arrange. Efficiency or
quality benefits are thus needed to justify the higher cost. Value �for money is only likely if the project is large
enough to justify the additional transaction, management and legal costs by providing scope for optimizing risk
allocation and adding value or lowering costs--and if there is a market of competent private enterprises willing
to bid and capable of delivering or managing the project. Assessing this is difficult: it involves comparing the
additional costs and delays in project preparation, tendering, evaluation, approval, corporatization, financing,
and so on, the higher tolls needed to cover these (which have the effect of lowering economic benefits), and the
benefits of management efficiency, project quality, schedule adherence, increased productivity and securing
additional (even if more expensive) capital. The UK Treasury has developed guidelines and a standard
evaluation spreadsheet for assessing whether PSP offers better value for money when compared with the
traditional approach. The Australian states of Victoria and Queensland, among others, have also issued value for
money guidelines. Australia has established a National PPP Forum to promote a consistent approach to
public/private partnership projects (including standard risk-allocation models and tendering procedures),
improve coordination and information-sharing with private industry, provide a forum for resolving concerns and
develop PPP skills through training and staff secondment.
For most developing countries, however, a PSP strategy is risky. Making it work effectively requires specialist
assistance.
20 PREPARING A NATIONAL TRANSPORT STRATEGY
Railway infrastructure (track, stations, signaling, and so on) is also usually provided by
governments, though some (for example railways serving mining projects) have been developed by
the private sector, and others have been privatized or their management outsourced under concession
arrangements. Some governments have transferred responsibility for railway infrastructure to more
autonomous agencies, and in a growing number of cases these have been separated from the
organizations, public or private, that are given operating rights over or access to the infrastructure
(Box 5-5). Again, which is best?
Box 5-5 Alternative models of railway infrastructure and operations
Railways around the world differ in ownership, organization and government regulation. In the US and Canada
freight services are provided by six principal and many regional and local railways, all privately owned. Intercity
passenger services are provided in the US by Amtrak and in Canada by Via Rail, both government-owned.
Elsewhere, national governments almost invariably own the rail infrastructure and, in most cases, the operating
companies as well. In most Latin American and some European and African countries, governments have
granted concessions to private operators. Most EU railways have separated infrastructure management, freight
operations and passenger operations, though most are still government-owned. In contrast, in the US and
Canada, freight railways mostly own their infrastructure and operate their own trains, with some competition
through trackage rights, with one railway allowed to operate services on lines owned by another.
Most passenger services are loss making and require government budget support.
The outright sale of public railways is uncommon (profitable railways are rare10), but separating
management of infrastructure from operations and placing infrastructure management in the hands of
a more independent track agency, has become more common in recent years (Box 5-6). The aim is to
encourage competition among independent freight and/or passenger service providers and achieve
better infrastructure cost recovery from access charges. But most railway systems--especially those
offering mainly passenger services, which tend to be priced below variable cost (Box 5-7)--are not
sufficiently profitable to be able to cover infrastructure maintenance and replacement costs from
operating revenues, so track agencies tend to require continuing budget support. Moreover, opening
up track access to third-party service providers can result in downward pressure on the rates of state-
owned operators, as existing bulk customers and forwarders threaten to run their own services
instead, and the loss of more profitable freight services to third-party providers leaves loss-making
passenger operations without a source of cross-subsidy and in need of greater financial support from
the government budget. This has come to be recognized as a critical issue in Vietnam, which is
attempting to restructure its railways.
Box 5-6 Separation of railway infrastructure and operations
Claimed benefits from separating rail infrastructure from operations include: lower unit costs, competition in
provision of rail services, a better commercial focus, clearer public policy and a better balance between the roles
of public and private sectors. Countries that have attempted this kind of separation include Argentina, Sweden
and the UK, but each has found the process difficult, with problems posed by lack of control over infrastructure
standards, fair allocation of capacity, pricing and safety regulation.
10Note, however, that railways may sometimes be attractive to investors more because of the value of the land
they own or occupy than due to their operational profitability.
Policy Principles 21
Box 5-7 Average and variable Costs
The cost of providing transport is made up of fixed and variable components. Fixed costs (for example office
overheads, major equipment items) do not vary with the level of output, while variable costs do. Different
transport modes have different mixes of the two. Railways' fixed costs are a relatively high proportion of total
costs for short hauls, but the average (total) cost per ton-km or passenger-km falls below other modes over
long distances (see also Box 5-9).
Radical restructuring of railway systems should be approached with caution. The benefits of focused
management, a more business-like approach and greater competition through PSP certainly may be
worth pursuing, but they must be weighed against the financial pressures on passenger operations,
the tension among the needs of third-party users and the ability of a track authority to fund
investment, asset replacement and maintenance, and the negative impacts on employees.
Concessioning (Box 5-7) is an alternative, whereby responsibility for operating the railway, or selected
railway services, is transferred to a private enterprise for a defined period in exchange for revenues
and, where necessary, an agreed government subsidy. This can bring most of the benefits of cost-
conscious commercial management and incentives to attract traffic and run operations efficiently. But
it also, usually, involves a reduction in the workforce, which is resisted by employees.
Box 5-8 Railway concessioning11
In 2005, there had been 13 rail concessions in Africa since 1993, four having operated for five years or more.
Most had benefited from initial injections of capital, equipment and upgraded facilities. A review found that these
operations were arguably performing better than if they had not been concessioned. Labor and asset
productivity, cost structures, marketing, quality of service and internal business practices had all improved.
Public Service Obligations (PSOs) were generally being met, even though bus-based systems might have been
more economical. In most cases, however, the railways were unlikely to be able to finance major infrastructure
renewals from retained revenues. It was therefore questionable whether purely privately financed rail
concessions would be achievable in much of Africa in the foreseeable future.
Whether or not railway restructuring is attempted, efforts should also focus on ensuring that railway
services are able to exploit their competitive advantage vis-�-vis other modes (Box 5-9); in many
countries they fail to do so, largely because of their bureaucratic management, operating inefficiencies
and lack of investment. Railway transport should be cheaper than road transport over distances of
around 200 km. or more, particularly for lower-value, bulk, less time-sensitive commodities and
containerized freight. (Higher-value, time-sensitive goods will generally be difficult to attract for all but
high-speed services over long distances.) If rail fails to be competitive over long distances, efforts
should be made to reduce the costs and delays of transshipment (for example by unitization of loads
and mechanization of handling), improve running speeds and delivery times, increase unit capacity
and ensure that the tariffs charged for competing modes generally reflect all the costs involved (see
Section 5.4).
11 Results of Railway Privatization in Africa, Richard Bullock, World Bank Transport Papers No. TP-8, Washington
DC, 2005.
22 PREPARING A NATIONAL TRANSPORT STRATEGY
Box 5-9 Unit transport costs by alternative modes, by distance
Over long distances, transport modes with high fixed costs but low variable costs--such as railways and air
transport--are able to reduce average costs.
Average
Cost per
Km Air
Sea
Rail
Road
Distance
However, users are also concerned about service quality, reliability and security from loss or damage.
Ports and port-related facilities (wharves, container yards, storage, transshipment facilities, and
so on) also tend to have been provided by governments but have sometimes benefited from PSP.
While several different approaches are used, the majority is formed by concessions such as (long-
term) lease contracts and BOT structures.
Ports around the world are managed along one of the principal management models:
� Public Service Ports. Service ports have a predominantly public character. The number of
service ports is declining. Many former service ports are in transition toward a landlord port
structure. However, some ports in developing countries are still managed according to the
service model. Under this model, the port authority offers the complete range of services
required for the functioning of the seaport system. The port owns, maintains, and operates
every available asset (fixed and mobile), and cargo-handling activities are executed by labor
employed directly by the port authority. Service ports are usually controlled by (or even part
of) the ministry of transport (or communications) and the chairman (or director general) is a
civil servant appointed by, or directly reporting to, the minister concerned. Among the main
functions of a service port are cargo handling activities. In some developing country ports, the
cargo handling activities are executed by a separate public entity, often referred to as the
cargo handling company. Such public companies usually report to the same ministry as the
port authority.
� Landlord Ports. As noted, the landlord port is characterized by its mixed public-private
orientation. Under this model, the port authority acts as regulatory body and as landlord, while
port operations (especially cargo handling) are carried out by private companies. Today, the
landlord port is the dominant port model in larger and medium-sized ports. In the landlord
port model, infrastructure is leased to private operating companies or to industries such as
refineries, tank terminals, and chemical plants. The lease to be paid to the port authority is
usually a fixed sum per square meter per year, typically indexed to some measure of inflation.
The initial lease amount is related to the initial preparation and construction costs (for
example, land reclamation and quay wall construction). The private port operators provide and
maintain their own superstructure, including buildings (offices, sheds, warehouses, container
Policy Principles 23
freight stations, workshops). They also purchase and install their own equipment on the
terminal grounds, as required by their business. In landlord ports, dock labor is employed by
private terminal operators.
� Private Service Ports. Fully privatized ports (which often take the form of a private service
port) are few in number, and can be found mainly in the United Kingdom and New Zealand.
Full privatization is considered by many as an extreme form of port reform. It suggests that
the state no longer has any meaningful involvement or public policy interest in the port sector.
In fully privatized ports, port land is privately owned, unlike the situation in other port
management models. This requires the transfer of ownership of such land from the public to
the private sector. In addition, along with the sale of port land to private interests, some
governments may simultaneously transfer the regulatory functions to private successor
companies.
� Tool Port. The Tool Port, a fourth model, is relatively rare. Its management model is a blend
between the Public Service and the Landlord models.
The Port Reform Toolkit Second Edition of the World Bank contains extensive information on port
management, reform, regulation and strategy (www.worldbank.org/transport/ports/toolkit.htm).
Many government-managed ports, even when managed by more autonomous port authorities, tend to
be slow in responding to users' needs and to have relatively low productivity and poorly-structured
charges, while a system of privately developed ports risks duplication and lack of integration within an
overall plan. Therefore, the Landlord port model is generally considered as the balanced model, in
which basic port infrastructure is planned, established and maintained by the public sector and the
development and operation of terminals and related facilities are outsourced to the private sector for
specified periods. Box 5-10 provides an overview of how the management structure works under the
different management models.
Box 5-10 Port management models12
Type Infrastructure Superstructure Port Labor Other Functions
Public Service Port Public Public Public Majority public
Landlord Port Public Private Private Public/private
Private Service Private Private Private Majority public
Port
Private Public Private Public private
Tool Port
Air transport. As in the case of ports, similar considerations apply to airports, where strategic
decisions about the location, scale and basic configuration tend to be made best by governments
within an overall national Air Transport Master-Plan, while the development and operation of
passenger and freight terminals, aircraft maintenance, catering and related services can benefit from
commercial management and provide opportunities for private sector involvement. Like ports, airports
12See: World Bank Port Reform Toolkit, Module 3, Alternative Port Management Structures and Ownership Models.
http://www.worldbank.org/transport/ports/toolkit.htm.
24 PREPARING A NATIONAL TRANSPORT STRATEGY
need substantial capital funding, making long concession periods necessary to recover investment
costs under PSP options. This entails the risk of monopolistic pricing and makes appropriate design of
the regulatory framework and concession agreement very important (see Section 5.2). In addition, a
national airport system usually consists of high-volume (and profitable) international gateways
supporting a network of non self-sustaining peripheral airports that are an important part of the
transportation network. Since most infrastructure investment in air transport is nodal rather than
covering the entire distance of travel (contrary to rail and road networks), a well-distributed airport
system can provide the necessary access to more remote and rural areas that are not supported by
substantial ground-based transportation investment.
In general, there are strong arguments for the private sector to provide air transport services and
most other airport services, while governments have an advantage in providing safety oversight and
the basic infrastructure in terms of runways, navigational aids, weather services, and air traffic
control. The oversight authority ideally is a financially autonomous agency sustained by fees collected
from over flights, passenger fees, and other applicable airline fees. To ensure consistent and reliable
oversight and enforcement in low demand and peripheral locations, regional pooling of oversight
resources (including aircraft inspectors) may be necessary.
Security is becoming increasingly important. Here too, the options include provision and operation of
security equipment (for example surveillance and scanning equipment at ports and airports) by
government agencies (port/airport authority or government security services) or under contract by the
private sector. In each case, the key lies in designing appropriate targets and procedures for
monitoring efficiency and effectiveness.
Responsibilities for multimodal passenger and freight transport facilities (freight and passenger
interchanges, inland container depots, freight terminals, and so on) often tend to fall between the
government agencies responsible for individual modes (Box 5-11). Yet the efficient transfer of goods
between road, rail, inland waterway and maritime transport can be crucial to the economy's
competitiveness and the needs of passengers. This is a critical issue for urban passenger terminals,
where different modes and services meet, and often compete, for customers. The often fragmented
structure of infrastructure ownership--government railways, private road services, state port
authorities--tends further to frustrate the development of coordinated services and complicates the
provision of inter- or multimodal facilities by the private sector.13 Both government and private sectors
can play a role in overcoming these constraints: the government by developing an integrated
multimodal plan, encouraging a more commercial and coordinated approach by state-owned transport
agencies and removing regulatory restrictions on the private sector's involvement; and the private
sector by developing integrated multimodal solutions to the needs of freight customers and
passengers, spanning the separate regulatory frameworks governing each mode. This change to a
multimodal perspective is not often in evidence in the NTSs reviewed; most countries continue to
suffer from a delineation of modal responsibilities that make multimodal coordination difficult.
13 Multimodal transport is the carriage of goods by two or more transport modes under one contract, with one
party (the multimodal transport operator) responsible for the entire carriage. It is a key component of modern
logistics, the whole supply chain including packing, handling, storage, inventory management, customs clearance,
documentation and consignment tracking as well as direct transport. Multimodal transport is not quite the same as
intermodal transport, which refers to the movement of goods in a single unit through two or more transport modes
without the need to handle the individual goods themselves when changing modes.
Policy Principles 25
Box 5-11 Multimodal transport facilities14
A recent study in Vietnam found that multimodal transport and logistics services were in their infancy, as in
many other developing countries. Customers were not fully aware of their benefits; they focused on reducing
transport costs but did not realize that higher-quality, more reliable transport would open new markets, improve
export prices, reduce losses and damage to goods and enable reductions in inventory costs. Operators of
individual services did not see themselves as part of an integrated logistics chain. Multimodal transport services
were mainly provided by freight forwarders; there were only a few specialized Third Party Logistics (3PL)
providers. New and revised laws governing trade, customs, competition, investment, enterprise reform and
management of transport modes provided a better facilitating environment, but their implementation
mechanisms had shortcomings.
Efficient multimodal services could be established under existing laws but modal laws and regulations (governing
road, rail transport and so on) needed updating and there were inconsistencies and overlaps in existing
regulations. The study recommended placing all regulations governing multimodal transport in a new decree and
gave guidelines to help ensure consistency in policy on matters affecting multimodal transport and the economic
regulation of individual modes.
Infrastructure in remote or poor areas, like isolated rural roads, airstrips, coastal jetties, or low-
income suburban areas pose difficult issues of development, management and funding. They are
usually not commercially viable; users cannot afford to pay for their development and upkeep, and no
business would provide the needed infrastructure without subsidy. They tend therefore to be provided
by governments, often local governments strapped for cash, and to fall into disrepair before the end of
their intended lives. Different ways have been tried to overcome this problem, but the facilities
generally stay in the public sector. Some depend on voluntary or paid community labor, others on
outsourcing arrangements, but always with some element of government support. Note that remote
transport services, as opposed to infrastructure, often lend themselves better to PSP; these are
discussed below.
Some of the countries reviewed have recognized the importance of rural transport and have developed
special programs under their NTS. Examples include South Africa, China and Tanzania.15
In cases where PSP is envisaged, the regulatory framework governing concessioning and private
sector provision of infrastructure is critical. Too often, cases arise where governments award PSP
contracts through arrangements that are opaque and open to corruption, and that provide few
effective incentives to improve performance. Instead, the concession award and regulatory process
should have the following key features:
� Separation of the functions of owner and operator, so that the government can hold the
operator accountable for performance in pursuit of clearly-defined objectives;
� Open, transparent competition among potential investors, service providers, managers or
operators, and straightforward criteria for selecting the preferred bid;
� A policy on unsolicited proposals, to maintain competition and help ensure the best option is
chosen;
� An agreement on the allocation of all risks between government and private parties;
� Concession agreements that formalize all rights and responsibilities and include arrangements
for monitoring compliance.
14 Ministry of Transport and World Bank, Vietnam: Multimodal Transport Regulatory Review, PPIAF Grant No.
A010304/L/TMT/RF/VN, Meyrick and Associates in association with TDSI and Carl Broa|s, April 2006.
15 Tanzania's National Transport Policy 2003--a good example of an NTS--is interesting on account of its structure.
Rather than adopt a strategy based on transport modes, as many others do, it is organized--after setting out
shortcomings, objectives, goals and policy framework--around strategies for urban, rural, pan-territorial,
international and special transport.
26 PREPARING A NATIONAL TRANSPORT STRATEGY
Governments should view private finance and management of infrastructure as an option, not a
precondition, for successful project implementation and asset management. They should test whether
alternative financing/management options offer better value for money.
In summary, either approach--public or private provision of transport infrastructure--can be made to
work effectively, but whether it does so depends on the incentives provided and how the government
controls its operations. Government agencies can manage infrastructure efficiently and effectively if
managers have a strong incentive to do so--if clear, realistic targets are set, and managers are given
decision-making autonomy and adequate, sustainable resources, and are held accountable for
performance, penalized for under-performing and rewarded for achieving targets (though none of the
NTSs reviewed met these criteria fully). Private sector management can also be effective if there are
open, transparent competition in the award of concessions; clearly-specified performance targets, a
rational system of pricing; and procedures for monitoring compliance with well-designed concession
agreements and dealing fairly with disputes.
Transport services
Transport services--more ubiquitous than major items of infrastructure and requiring the ability to
respond more flexibly to the needs of users--are better suited to competitive private sector supply.
The key word is competitive. Passengers seek the service that meets their requirements for
availability, quality, reliability, speed, security and price. In many rural and urban areas, walking is
the main alternative mode of choice to vehicle-based transport, which people use to go to work and
access basic social facilities. Freight customers always seek better logistics solutions; they are not just
concerned about the out-of-pocket cost of transport (if that were the case, all freight would move by
the cheapest mode, which clearly it does not). Freight transport services have quality attributes--cost,
transit time, reliability, availability and security from loss or damage--whose relative importance
depends on the type of freight and the circumstances in which it is being transported. The non-
monetary, "quality" attributes are especially important for the growing trade in intermediate goods, in
which developed countries outsource parts of the production process, especially in garments, where
fashions change rapidly and the production cycle must be short (Box 5-12). The logistics system,
including transport services, must be capable of responding rapidly and reliably to these needs.
Box 5-12 Importance of quality attributes of transport
The clothing and textile industry is one where it is essential that supply chains be responsive, reliable, fast and
efficient. Most garments are ordered in a particular style to fixed deadlines to reflect fashion trends. Late or
unreliable delivery that misses the fashion launch is, in most cases, equivalent to no delivery at all, and will
result in production being redirected in future to providers with more efficient supply and distribution systems.
Very few of the NTSs reviewed recognize the importance of this. Much is made of competition as an
agent in bringing down prices, but the role of competition in supplying the kinds of quality services
needed to meet the requirements of external markets is rarely mentioned.
Experience has shown that state-owned transport service providers are usually not good at this; those
enjoying a monopoly are even less so. Their relatively low rates of pay, reliance on government
budgets and decision-making and lack of commercial incentive make them comparatively
Policy Principles 27
unresponsive and inefficient.16 Moreover, their existence tends to act as a brake on the development
of efficient, demand-responsive services by the private sector; governments tend to protect them
when they are threatened and favor them when awarding contracts (Box 5-13).
Box 5-13 Responding to changing markets
China has committed to opening up its distribution and logistics markets to foreign participation. This will raise
competition, hasten industry consolidation and improve service quality. Already domestic companies are
consolidating and developing a more market-driven, customer-focused approach in preparation and in response
to new business opportunities. Probably more than any other factor, this will help reduce inefficiencies in the
road freight industry, raise quality and security, improve commercial management and strengthen workforce
skills.
Modernization of logistics is a top priority. National and provincial governments are investing in infrastructure
and logistics hubs. The Ministry of Communications is trying to help consolidate the industry and build market
leaders as competitors to foreign market entrants or targets for foreign participation. Manufacturers and traders
are increasingly out-sourcing logistics tasks in order to focus on their core competencies. Their interest in one-
stop service is encouraging the integration of supply-chain functions. SOEs and local logistics and transport
enterprises will need to adjust to competition and pressure for better service quality and lower costs from
consumers, customers and shippers, most of which are unlikely to develop their own distribution networks.
Independent 3PL service providers are also responding to distribution markets that are expected to grow by
more than 30 percent p.a. They are keen to develop modern logistics networks, including warehouses,
packaging plants, intermodal trans-shipment facilities, freight consolidation centers, and so on. Many players
(including traditional logistics SOEs, new private companies, own-account operators turning to logistics and
foreign service providers) are already doing this. It will not be long before their share of the logistics market will
rise from 2 percent in 2001 to levels closer to those seen in the US (8 percent) and Europe (10 percent). The
market is large: China spent $ 350 billion on logistics services in 2004, 16.6 percent up on 2003.
Even in centrally planned economies, the growing evidence overwhelmingly supports a strategy to
open up transport markets to competition, encouraging the development of a competitive private
sector and winding down the role of SOEs.
Transport services do need to be regulated to ensure that they are safe, to help reduce congestion
and ensure that an adequate service frequency is maintained. In this respect, the nature of
competition may have to be controlled. In many congested cities in developing countries, an
uncontrolled multiplicity of passenger transport service vehicles, legally operating or not, often
compete on the streets to gain the maximum number of passengers, causing both accidents and
unnecessary congestion. In this instance, competition "for the market", that is, bidding for different
routes, may be preferable to the current form of competition that operates "within the market" (see
Section 5.3). There are also situations where it is difficult to establish competition among service
providers. In much of Africa, interurban freight and some passenger transport operations are
dominated by cartels, operated through an enforced system of queuing for loads and passengers at
truck and bus parks, giving rise to very high tariffs, inefficient operations with low vehicle utilization
and, in rural areas, low service frequency.17 It is often easier to sustain such monopolistic/cartel
16There are exceptions. Some government operators are efficient--China, for example, has some road transport
and shipping companies that are world class--but usually only when they have been freed from the government's
bureaucratic procedures and given almost complete autonomy to manage their affairs on a commercial basis.
17This is documented in numerous reports. See for example Improving Rural Mobility: Options for Developing
Motorized and Non motorized Transport in Rural Areas by Starkey, Ellis, Hine and Ternell, World Bank Technical
Paper No. 525, Washington DC, 2002.
28 PREPARING A NATIONAL TRANSPORT STRATEGY
operations in areas of low density of demand. In contrast, in Asia, where the density of demand is
high, it is more difficult to sustain cartels, and long distance services are provided competitively at
much lower cost. There are no easy solutions to deal with entrenched widespread cartels and
monopolistic practices. Strong local political leadership, to promote greater customer and public
awareness to help discourage the queuing practices and create new forms of competition can play a
part.
A lack of service availability can be a key problem where demand is very thin and commercial services
unprofitable. This occurs in sparsely populated areas and island communities. Should governments
provide services in these situations? They certainly recognize the need for such services: Tanzania,
South Africa, PNG, Guyana, Vanuatu, Fiji, China and Bhutan, among many others, all stress the
development of rural transport services or services to remote island communities. But when
governments do provide them, they tend to be poorly funded and neglected, and there is little
incentive for the operators (for example local governments) to strive to be efficient or attract
customers by raising quality. Alternatives are possible which capture some of the incentives of
competition, cost-cutting and profit-seeking: a system based on the award of route franchises (that is,
bidding "for the market"), in which operators are invited to bid for the right to operate a defined
service for a period in return for revenues collected and a periodic subsidy, with the winner awarded
on the basis of the minimum subsidy and/or tariff (Box 5-14); operating rights can be re-bid at the
end of the franchise period.
The advantage of such arrangements is that performance under the franchise agreement can be
monitored and the level of subsidy periodically weighed against the perceived benefits of the service.
Alternative approaches involving loss-making services being subsidized by profitable ones conceal the
subsidy, making a cost-benefit comparison difficult, as well as disadvantaging users on the more
profitable routes.
Box 5-14 Route/service franchising
The government of Fiji periodically invites competitive tenders from inter-island operators to service routes
under the Government Shipping Franchise scheme. Under this scheme, the operators receive a subsidy--the
amount of the subsidy is one of the selection criteria--in return for a commitment to provide service of a
nominated frequency to specific locations within each island group (Lau, Kadavu, Yasawa North-Eastern Vanua
Levu, Gau, Nairai, Rotuma and Batiki).
Difficulties in establishing competition sometimes also arise with international air and maritime
transport, where there is often a desire to maintain a national champion against foreign competition.
Despite government protection, such services are often loss making. Even here, there are
opportunities--like code-sharing for outsourcing the service to privately-owned specialists--and, in the
extreme, running a "virtual" state-owned service, advertised as being provided by the national carrier
but actually fully outsourced to private service providers.
Organization of government functions
It is not uncommon for governments to be both regulator and operator of services that are essentially
commercial in nature and subject to private sector competition, or both owner and operator of
infrastructure that might otherwise benefit from more independent, business-like management.
Policy Principles 29
When governments plan, regulate and provide transport services and infrastructure, they tend to
protect them from competition. As a result, state-owned service providers have less incentive to
operate efficiently and flexibly in response to users' needs. Private operators that would be more
motivated to do so are squeezed out, to the disadvantage of users and the competitiveness of the
economy as a whole--hence the preference for open, competitive markets and expansion of the
private sector's role.
A move towards more competitive markets, however, changes the role of government from one of
providing infrastructure and services itself to one of monitoring and regulating the performance of
other service providers to secure the interests of users and the general public. This has implications--
unrecognized in many of the NTSs reviewed--for its own institutional structure: more emphasis on
planning, regulating, coordinating and monitoring functions, and less on building and operating
infrastructure and services. Countries respond to these changes in various ways, for example by:
Separating the government functions of planning, regulating, coordinating and monitoring from
the functions of developing and operating infrastructure or services;
Establishing more autonomous agencies and enterprises to manage state-owned commercial
assets more efficiently--and ultimately auctioning such assets to the private sector (while
avoiding the creation of a private monopoly in place of a public one);
Beefing up planning, regulatory and monitoring skills (which differ from the skills needed to
build and run transport services), especially in areas concerned with market entry, competition,
pricing, taxation, public safety and environmental protection (see also Section 5.2);
Introducing improved procedures for outsourcing selected tasks, including better contract and
concession agreements, performance standards and targets, monitoring procedures and
arrangements for resolving disputes;
Opening up the process of planning, regulation and performance monitoring to external review.
Box 5-15 Key institutional reforms
� Separating planning, regulating, coordinating and monitoring functions from those of developing and
operating infrastructure or services;
� Establishing more autonomous agencies to manage state-owned commercial assets in a more business-like
way--and selling them to the private sector when there is a competitive market;
� Beefing up planning, regulatory and monitoring skills, especially in market entry, competition, pricing,
taxation, public safety and environmental protection;
� Outsourcing tasks with improved contract/concession agreements, performance targets, monitoring
procedures and dispute resolution arrangements;
� Exposing planning, regulation and performance monitoring to external review.
5.2 Planning and investment policies
Within the scope of this document it is difficult to suggest in detail how projects should be prioritized--
there is a wealth of literature on techniques for project planning and evaluation--other than by saying
that they should anticipate future developments and changes in demand and provide the capacity to
meet future needs in the most economically efficient way--a policy most NTSs endorse. As noted in
Box 2-1, this can sometimes involve the use of national or regional network planning models. But it is
30 PREPARING A NATIONAL TRANSPORT STRATEGY
important that governments set out a consistent set of criteria that will guide the planning process,
and this is often not done, especially among transport modes.
Principles and criteria governing public sector investments
Public sector investment planning should be guided by consistent, rational criteria, applicable
across all modes, in relation to environmental impacts, public safety and economic and/or financial
returns. Few of the NTSs reviewed have been consistent in applying such criteria. To help achieve this,
a strict process of project evaluation and appraisal is needed, carried out in accordance with well-
established guidelines.
Public projects should meet or exceed:
Minimum acceptable standards of environmental impact (usually specified by the ministry
responsible for environmental protection)--air and water pollution, noise, impacts on flora and
fauna and so on--and their design and implementation should include measures to mitigate
negative impacts;
Minimum safety-related standards--for example design standards for visibility, reliability,
guardrails, lighting, visibility, geometry, and so on;
For the majority of projects that are justified on economic grounds, a minimum threshold
economic return should be achieved; that is, a positive Net Present Value (NPV) calculated using
a specified economic discount rate, or Economic Internal Rate of Return (EIRR), which is above
the discount rate for the costs and benefits forecast over a specified period;
Where appropriate (that is, where user charges are levied and the project serves a commercial
purpose), a threshold financial internal rate of return (FIRR).
Where projects are specifically designed to meet particular social criteria (for example rural roads to
meet basic access requirements) a prioritization planning procedure should be adopted to help rank
projects so that the overall program achieves the best value for money. To do this, it will be necessary
to quantify the social (and, if appropriate, additional economic) criteria for each project as directly as
possible (for example, identifying not only the cost of each road project but also the benefits in terms
of, say, the increase in the number of people living within 2 km of an all-season road).
The economic value of a project depends on our assumptions and ability to identify and measure all
the relevant costs and benefits of a project. Some components (for example existing traffic volumes)
will be known with reasonable certainty from an analysis of current traffic data. However, other
components such as the growth in traffic arising from other investment projects, changes in vehicle
specifications, changes in trade policy and market structure, or the wider developmental impact
arising from the project, will be uncertain and will probably be omitted from the conventional project
appraisal procedure. Statements of government intention and other planning processes may identify
national and regional policy and investment interventions which will, in turn, affect the underlying
assumptions of the appraisal procedure and may well have an important bearing on the overall
economic success of different projects. Investment projects are most likely to be implemented and
have successful outcomes if they are consistent with sensible and realistic longer term strategic and
regional development plans, policies and goals. To be successful, unsolicited proposals by the private
sector should also meet those criteria.
Most NTSs are based on a technical and economic appraisal of investment options, but few state
explicitly what criteria all public sector investments are expected to meet. Ideally, project proposals
Policy Principles 31
should be subject to independent review, preferably by an agency separate from the sponsoring
ministry; some countries (for example China, with its National Development and Reform Commission,
and Indonesia, with its National Development Planning Agency, Bappenas) have planning or
coordinating ministries. The review should test the possibility of variations in the assumptions used in
evaluating them (for example forecast economic growth and transport demand, available investment
resources and network capacity, transport prices and taxes), and should include an analysis of the
factors that might put the project at risk of failing to meet its intended objectives (risk analysis).
For large cities, where each agency/institution often promotes its own transportation mode, sound
appraisal for different modes should be carried out by an independent body, which is responsible for
all transport investment and regulation in the urban area. It is extremely important when considering
different mass transit schemes, that a proper range of alternatives is evaluated. For example, bus
rapid transit can be extremely effective, yet it is often ignored when rail-based schemes are
considered.
Technical standards are commonly set for infrastructure, such as geometric and load-bearing
standards for roads and bridges. Sometimes these are unrelated to safety or environmental matters
and could legitimately be reviewed. Guidelines relating road width to functional classification, for
example, might result in standards that are uneconomically high when traffic is lower than usual.
Inappropriately high standards might cause benefits to be foregone or investments unnecessarily
delayed. Good planning would allow lower standards, or the staged development of higher standards
in line with growth in demand, to be tested at the project evaluation stage.
Box 5-16 Technical standards
Technical standards for infrastructure are important in ensuring consistency in safety and environmental
protection features throughout the network. But they can also result in an inappropriate level or timing of
investment. Many expressway projects, for example, built according to fixed standards for number of lanes and
cross-sectional geometry, might benefit from construction in stages in line with traffic growth, for example with
two lanes initially and more lanes added later, when traffic levels justify the additional capacity.
This situation often arises where technical standards are predetermined and the project's timing is set by the
fixed schedule of a planning pipeline, including donor support. The momentum of commitment to a project
sequence also risks contributing to "optimism bias", as project proponents strive to find their projects viable.
Controls on private sector investment
What controls should apply to private sector investments? Like public investments, they should be
consistent with strategic plans. Ideally, these plans should indicate those projects that are
available for PSP and the procedures and criteria to be used in inviting and evaluating proposals,
including project specifications, feasibility studies, bid evaluation criteria and model contract or
concession documents.
Unsolicited proposals can present risks of inappropriate or poorly timed investment and
arrangements for risk-sharing that favor the investor; corruption is not uncommon. Addressing these
requires a proper framework for evaluating them in the context of a broader sector strategy. None of
the countries reviewed had a stated policy on this. Some countries encourage unsolicited proposals
but subject them to the same tests of risk and viability as other planned projects (usually at the
expense of the proponent), and sometimes invite competing proposals. To compensate for the effort
put in by the original sponsor, they adopt approaches like the "Swiss challenge": allowing proposals to
32 PREPARING A NATIONAL TRANSPORT STRATEGY
be made by competing bidders but then giving the original proponent the right to respond with a
revised bid. An important aim of such an approach should be to retain the value of competition in
maximizing quality and efficiency.
The process of bidding and award of concessions is not addressed in any of the NTSs reviewed; in
many cases, it might be considered a matter of broader government procurement policy. But, ideally,
the process should:
Allow as much flexibility as possible in the bidder's approach--allowing him, for example, to
propose innovative forms of financing, bundling with other projects and so on--in order to
discover the best value for money outcome;
Clarify all input assumptions, including tariffs and tariff-setting procedures, performance
targets, penalties and incentives, and government contributions and/or guarantees;
Adopt simple criteria that can be easily evaluated, for example lowest subsidy or revenue share
for a given tariff, which make it easy to justify the award decision and do not require frequent
amendment to cope with unforeseen circumstances during the concession/contract period;
Specify outcomes and performance targets that can also form the basis for comparison of bids--
for example service performance standards, maintenance standards, timetable for increases in
capacity;
Limit opportunities for renegotiation, by specifying the conditions in which renegotiation is
permitted and making it clear that risks are otherwise assigned by a risk allocation matrix (see
below) included in the agreement;
Insist on open, transparent competition, exposed to independent scrutiny (with evaluation of
bids verified by an independent panel, for example);
Make all relevant information available to all bidders.
The concession agreement should set out clearly the rights and obligations of the parties involved;
the nature and duration of the services outsourced; government contributions and guarantees; tariff-
setting policies and procedures for varying them; performance measures, incentives, penalties and the
basis for any revenue-sharing; standards of technical and financial record-keeping and reporting;
arrangements for monitoring technical and financial performance; specific conditions giving rise to
default and/or renegotiation (and conditions expressly excluded from consideration for renegotiation);
and arrangements for jurisdiction and dispute resolution. Details of this are not included in any of the
NTS policy statements reviewed, but they must be set out somewhere, if the common pitfalls are to
be avoided.
The more the agreement eliminates ambiguities and clarifies and reduces risk for both parties, the
lower the financing costs and the better the value for money of the outcome. Good concession design
holds concessionaires to the terms of their original appointment and reduces the need for
renegotiation. It makes clear what each party's rights and obligations are, contains incentives and
penalties to encourage performance and provides for fair and objective resolution of disputes. Efforts
should be made to pin down the key factors affecting cash flow and/or the assumptions on which they
are based, including the allocation of all categories of risk.
Policy Principles 33
The costs of PSP depend on the predictability of conditions affecting cash flow. A clear identification
and allocation of all potential risk factors can play an important part in this.18 Traditional economic
and financial risk analyses carried out at the feasibility study stage could be extended to include the
task of identifying all risk factors and mitigation options, determining the party best able to control
them, and presenting the results as a contingency table, clarifying the party responsible for any
actions, costs or revenue shortfalls arising from each, to be included in the concession agreement and
pre-bid documentation.
While these considerations are especially important in larger countries, where PSP is likely to be more
common, they also apply to smaller developing countries where private finance or management is
envisaged--for example in management of parts of the road network, or port terminals and so on.
Box 5-17 Allocation of risks
The absence of a clear allocation of all risks is a common cause of dispute in infrastructure concessioning. The
risks take many forms; some can be reduced by the actions of one or other party while others cannot. The
government should not transfer all risks to the private sector--this will attract a cost premium--but instead try
to allocate each to whichever party is best able to manage it. Private involvement should not be sought until all
significant risks have been identified and the government has decided which to retain and which to transfer to
the private sector.
Providers of project debt or equity require some security of repayment, otherwise financing costs rise to
compensate for their absence. They often require an equity contribution from government and/or guarantees of
financial return, traffic or cost thresholds. As a result, the financial performance of such projects has to be
higher than for projects built the "traditional" way, with public funds. In most cases, the (government) owner
would carry a portion of the risk.
Ideally, the process should also provide for the participation of stakeholders in planning and
performance monitoring. In many countries, notwithstanding statements about being responsive to
the community's needs, government management, financial and technical reports tend to be designed
to meet internal requirements and are of little value to stakeholders and members of the public
interested in assessing value for money; there is a lack of a culture of openness in reporting; little
effort is made to keep the public informed of progress towards objectives and get them involved in
reviewing this; the media are not used effectively to secure community support for management
decisions. Yet a free flow of information on planning decisions, criteria and performance ought to
benefit transport agencies and the government (by facilitating better-informed decisions) as well as
stakeholders and the general public (by giving them confidence that their interests are recognized and
being addressed).
Because it usually contributes to more effective projects and lowers the risk of corruption, it is
important to raise public awareness and instill a culture of openness, transparency and customer-
oriented responsiveness among transport agencies. This is becoming more common in the countries
18 Examples of risk categories include: the risk that project land will be unavailable or access to it made subject to
unexpected conditions; that project preparation or implementation suffers unexpected costs or delays; that debt or
equity financiers will not provide funding as expected; that the financial structure is incapable of providing fair
returns, calling into question the project's viability; that currency exchange rates move to the disadvantage of
either party; that the operator will be unable to deliver the expected services according to specifications and/or
within budget; that traffic or revenues will differ from projections; that the network in the project's vicinity will
change in a way that affects its viability; that government will unexpectedly change its regulations or policies (for
example on toll rates) in a way that would impact negatively on the project; and that events outside the control of
either party disrupt the project (force majeure).
34 PREPARING A NATIONAL TRANSPORT STRATEGY
reviewed--even those that have in the past been somewhat secretive--especially as the Internet
becomes more widely used.
Box 5-18 Benefit of stakeholder participation in planning
Government agencies cannot be expected to initiate reforms designed to strengthen accountability and
transparency if they are involved on both sides of the owner/operator fence. If these functions can be separated
by an arm's-length relationship achieved through contract, then the benefits of transparency--pressure on the
operator to perform in accordance with agreements--can be achieved. Achieving these requires the following
information, at least, to be made available and accessible to interested parties: details of the project; the basis
for selection and contract award; the operator's obligations, performance targets, incentives and penalties; and
the key results of monitoring technical and financial performance.
When it comes to infrastructure planning, the basic strategy should be to establish a system of independent
oversight that subjects investment, funding and management decisions to external scrutiny. This independent
scrutiny, facilitated by transparent decision-making and reporting, would put pressure on the agency to achieve
satisfactory performance. There should be a free flow of information on management decisions, criteria and
performance.
Resource availability
An important issue in developing an NTS is the availability of resources, both for funding and in terms
of institutional capacity and manpower (with the latter depending on decisions, discussed earlier,
about the role of government). Projections should be made of the funds likely to be available from the
government budget and the private sector. Since delays in projects that are already economically
viable with result in loss of benefits, alternative sources of funds should be identified if projected
budget allocations are found to be insufficient. These might come from the private sector, in which
case a PAS framework will be necessary, or they may be raised by increased user charges and/or
taxes, discussed in Section 5.4.
5.3 Operational, regulatory and licensing policies
The role of regulation and licensing
There is much talk of deregulation. What does it mean, and what is the role of regulation and
licensing? Basically, it is to establish controls that help achieve society's goals in relation to efficient
and demand-responsive services, public safety, the environment and protection of public assets. Most
of the controls dismantled under a deregulation strategy tend to be those that unnecessarily constrain
which providers, in what way and at what price, can offer what services and facilities. Dismantling
them can enable new providers to enter the market, allow new types of service to develop and prices
to reflect the better quality and greater productivity that is made possible by an easing of restrictions.
Many countries (for example China) adopt a heavily structured approach to service licensing in the
pursuit of higher standards--better-maintained vehicles, higher-quality services. But a relaxation of
controls can often help improve vehicle/vessel productivity, reduce unit costs and allow more flexible,
affordable services to develop. Similarly, fragmentation of transport industries (for example a
proliferation of small, poorly-managed service providers) is often addressed by government
intervention and regulation to bring about consolidation, but alternative approaches are also possible
that utilize market forces more effectively.
Policy Principles 35
Competition and incentive
If governments want to achieve efficient, demand-responsive, safe and environmentally sound
services, then incentives, rather than controls, are often the best way of doing so. Incentives can be
of two kinds: those that result from operators striving against competitors to win market share and/or
higher profit; and those that are encouraged by pricing/taxation tools--for example higher vehicle
registration charges for heavy vehicles that damage road pavements, or higher taxes on polluting
fuels.
Competition is the most powerful policy tool of all. Provided that basic standards of quality, safety,
environmental and public asset protection are met (see Section 5.3, subheading Protection of Public
Safety and the Environment), users benefit most when service providers compete to offer the best,
most efficient service in response to their perceived needs. This competition is usually best achieved
by phasing out SOEs and easing restrictions on:
Market entry (usually resisted by incumbents), retaining basic standards of financial,
management and safety performance as qualification for a license;
Pricing, allowing operators to set prices based on costs and affordability (with effective
competition, price gouging should not happen, but this can be monitored);
Choice of technology, allowing operators to choose the vehicle or vessel they consider most
suitable for the task;
Route structure, allowing operators to allocate vehicles or vessels to routes as they choose,
raising productivity and lowering unit costs;
Operations (timetable, frequency of service and so on), allowing operators to schedule their
services so as to maximize productivity.
Commercially minded operators tend to be better than government planners at deciding what
customers want, but totally unregulated markets can sometimes result in chaos. The planner should
monitor the situation and try to achieve an overall balance between demand and supply; sometimes
this might require equitable arrangements for allocating more profitable/unprofitable or peak and off-
peak services among operators.
In some cases--for example for urban bus services--it may be preferable to use competition in the
allocation of routes rather than on the road (Box 5-19): competitive bidding for renewable route
licenses or franchises can result in more ordered services.
36 PREPARING A NATIONAL TRANSPORT STRATEGY
Box 5-19 Urban bus route franchises
Urban bus services often impose a heavy workload on regulatory authorities, for example in administering rules
about routes, schedules and terminal operations. It does not have to be this way. An alternative strategy might:
� Reduce the number of clients, by interacting with a limited number of route organizations (route
associations, cooperatives or companies), not numerous individual vehicle operators
� Reduce the depth and scope of regulatory control, by (i) focusing on strategic planning and regulatory
policy--a guiding role--not on operational details, (ii) transferring more responsibility for internal
coordination of the route and operational aspects to the route organization and (iii) giving the route
organizations some discretion to adjust services to meet demand, within guidelines
� Reduce regulatory complexity, by simplifying the categories of vehicles and routes, eliminating redundant
regulations and choosing the best operator by tender; this is likely to require less subsequent intervention
by the regulator.
Protection of public safety and the environment
Markets may be good at matching services with customers' needs, but they do not guarantee
standards of public safety and protection of public assets and the environment. These require
operators to comply with technical and operational standards--for the design of road infrastructure,
vehicles/vessels, the use of safety equipment (seat belts, signal flares and so on), minimum
qualifications for operators, drivers or pilots, and restrictions on certain operations found to be
detrimental to public safety, the environment or public assets (for example speed restrictions, limits
on overloading, emissions, noise and so on). In addition, minimum safety features should be
mandated for public infrastructure (for example sight distances for roads and so on). Poorly regulated
(and enforced) public transport services generally lead to unsafe and environmentally aggressive
operations.
Even when such technical standards exist, there can be room for using incentives to promote
compliance, in addition to enforcement measures (Section 5.3, subheading Enforcement of
Regulations). The renewal of a business, operating or driving license, for example, could be made
dependent on a satisfactory safety record. Operators caught overloading trucks or speeding could be
fined points that are taken into account in a system of compliance-rating linked to license renewal
(Box 5-20). None of the developing countries reviewed made use of this strategy.
Fuel taxation (although not popular) can be an important tool to encourage the adoption of more fuel-
efficient vehicles and fuel-efficient transport solutions (such as the use of public transport rather than
private cars), and thus could be a useful measure to help reduce air pollution and greenhouse gas
emissions as well as reducing urban congestion.
Policy Principles 37
Box 5-20 Safety rating and license renewal
In a great many developing countries, enforcement of road traffic and safety rules is not effective. The US,
Canada and Australia use a mechanism based on safety-monitoring and rating of operators, linked to license
renewal. The approach gives operators a strong incentive to comply with safety and overloading rules. It makes
the right to hold a road transport operator permit conditional on achieving a satisfactory level of compliance and
on-road performance. This requires:
� Effective on-road enforcement (for example truck weighing and inspection stations)
� A databank containing information on operators' compliance, the results of vehicle inspections, and
involvement in collisions and traffic accidents, accessible to enforcement and licensing agencies
� A system for monitoring the data stored in the above databank
� A rating system that uses the monitoring results to grade operators
� A link between the right to operate a truck on the road and the safety-rating mechanism, so that operators
deemed unfit by the rating mechanism lose the right to operate a truck
� A system whereby enforcement agencies can perform safety audits on selected operators, for example new
entrants, randomly selected operators or operators that have reached a threshold on the rating scale.
Enforcement of regulations
In developing countries, enforcement of safety, environmental and other (for example overloading)
regulations is often ineffective and subject to corruption. How should regulations be imposed so that
they are effective, minimize unnecessary costs to transport operations and allow responsiveness to
demand? How can corrupt practices be eliminated?
It usually pays operators to evade the rules: if it helps avoid additional journeys, for example, the
benefits of overloading a truck are far greater than the cost of a back-hander to a poorly-paid official.
Facilities like weighbridges are often an important source of unofficial income. Measures with some
potential to overcome these problems can include:
Independent monitoring of enforcement efforts, in some cases even outsourcing the
enforcement task under performance-based contract, combined with the use of random checks
and surveys;
Automating the enforcement task as much as possible (for example by the use of automated
weighbridges), to minimize the involvement of personnel;
Raising public awareness of the costs of ineffective enforcement;
Capacity building for enforcement staff (for example, for police forces, managing traffic
management issues and public transport rights of way).
Increasing the level of fines alone rarely helps: it can actually have the effect of increasing the
incentive for corruption. Effective general deterrence of unsafe practices is achieved when, in addition
to introducing severe penalties, there is a perceived high level of certainty that all offending will be
detected and swiftly dealt with. Yet a common failing of many of the countries reviewed has been to
continue with traditional efforts to strengthen enforcement, spending money on ineffective inspection
stations and weighbridges, and continuing to make it attractive for enforcement officials to turn a blind
eye to violations.
38 PREPARING A NATIONAL TRANSPORT STRATEGY
Box 5-21 Measures to improve enforcement
Corruption is a common problem in enforcing safety and overloading regulations. Under a World Bank-supported
project, Indonesia has been trialing an experiment in Sumatra that involves outsourcing the operation of
weighbridges to private sector specialists, with independent spot surveys to check compliance. The operators
have incentives under their contract to ensure effective enforcement.
5.4 Pricing, cost recovery, taxation and subsidy policies
Inconsistent application of pricing policies and price controls seems to be common. It sometimes
arises from a desire to keep prices low for particular groups of user, limit the inflationary impacts of
transport or achieve a target allocation of traffics among modes. But it almost always results in
market distortions and limits the ability of operators to develop the services needed by users.
Price controls tend to be a poor way of keeping the costs to users under control; they really only have
a place where there is no prospect of competition. It is much better to encourage more efficient
services by relaxing licensing and operating controls, allowing new market entrants, and encouraging
operators to raise productivity and customize their services to suit demand. And economic efficiency
can also be improved by making users face the full incremental costs of their transport decisions,
including the costs of infrastructure and any externalities (congestion, pollution, accident risk and so
on). While this has long been recognized, surprisingly few of the countries reviewed have made much
progress towards consistent pricing policies.
Tariff setting
Tariffs for transport services and infrastructure should be set by markets wherever possible, reflecting
quality of service, costs--including financing and provision for asset replacement--and the choices
made by users faced with alternative suppliers. If government-owned services are to be priced at
below marginal cost, this should be an explicit decision, made on the basis of a comparison of costs
and benefits and with the subsidy clearly identified.
Private operators are keen to maximize profits, of course, and welcome the chance to set prices above
costs. The arrangements established by governments to monitor transport markets should recognize
and deal effectively with the possibility of collusion among suppliers--not necessarily through price
controls, which would limit innovation and reinvestment, but by sanctions (such as loss of license),
further removal of unnecessary controls inhibiting innovation, and the threat of permitting new
entrants to the market.
While other factors (reliability, security, speed of delivery) are often more important, relative price can
be a factor affecting the allocation of traffic among transport modes. A misallocation would occur if the
prices set by each mode failed to reflect the costs involved--including the costs of externalities.
Taxation
What types and levels of taxation should apply to public and private transport infrastructure and
services? Under what conditions might exemptions or concessions be applied?
Policy Principles 39
Over and above a general level of taxation to raise government revenue, there is scope to apply
special taxes to transport inputs. Often, in the past, these have been viewed as luxury taxes, levied on
users like car owners and air travelers that are perceived to be at the higher end of the income scale.
A low price elasticity of transport makes them a reliable source of public revenue.
But taxes also suppress demand and reduce the viability of transport services. Rather than aiming to
maximize public revenue, governments should consider adopting a more structured system of taxation
based on the principle of charging users for those costs they impose on society--the marginal costs of
public infrastructure, congestion, noise, pollution, accident risk, and so on--that are not recovered in
some other way. Thus, trucks would be charged for the incremental costs of road damage and
congestion they cause; this would make their customers face the consequences of their transport
decisions and would have the additional benefit of encouraging a restructuring of the truck fleet--the
replacement of old trucks that do heavy damage per payload-ton with larger, more modern trucks that
spread the load over more axles (Box 5-22). Unfortunately, most of the countries reviewed (Fiji and
PNG are exceptions) have not stated an explicit policy on this.
In cities, car-parking taxation should also be considered as a tool to manage transport demand and
better distribution among modes.
Box 5-22 Road damage and the structure of user charges
A study in PNG found that, like in many other countries, road maintenance had been under-funded for a long
time. Roads were deteriorating, and user costs were 20 percent more than they would be if maintenance was
funded and carried out properly. Various taxes and charges on users brought in more than was spent on
maintaining roads, but the rates were not linked in any way with the costs of road maintenance.
The optimal level of maintenance spending is that which minimizes total costs: the costs incurred by the road
agencies and the costs incurred by road users. The latter are always much more than the former (by a factor of
25 in PNG). The study estimated that spending the optimal amount on maintenance would lower user costs by
20 percent and total (user and agency) costs by 6 percent overall. It recommended a system of user charges
that assigned a fair share of the costs of optimal maintenance among the different classes of users: those
caused by heavy trucks were to be paid for by heavy truck operators, the rest fairly shared by all road users in
relation to their use of the network. For all classes, savings in vehicle operating costs on better-maintained roads
outweighed any increase in charges.
Infrastructure cost recovery
The argument for charging users for the costs they incur can be extended to infrastructure. Many
countries are moving towards commercialization of ports, airports and toll roads, and thereby towards
cost recovery for those types of infrastructure, but anomalies often remain: a structure of public
sector port charges that do not adequately reflect costs incurred; or taxes on fuel and vehicles that do
not make users face the costs of providing and maintaining the public road network. There are, of
course, particular difficulties with applying full user charges for urban transport infrastructure such as
urban railways or metros, where the infrastructure costs are very high (it is very rare for metro users
to meet the full costs) and, in addition, there are major external benefits, particularly in the form of
reduced road congestion, to take into account.
A rational structure of user charges and taxes, coupled with a policy of recovering the costs of
externalities, would also help level the playing field for transport modes, encouraging traffic to be
40 PREPARING A NATIONAL TRANSPORT STRATEGY
carried by the mode that offers the best cost/quality combination and, thereby, encouraging further
cost-saving investment.
Notwithstanding a policy of cost recovery, countries often fail to redirect the resulting revenues to
meet infrastructure costs. It is not uncommon for road users, for example, to pay in tolls, taxes and
annual license fees much more than the costs of maintaining the network, yet still have to put up with
badly maintained roads.
One way around this is to establish dedicated funds that do not depend on government budgets but
receive and manage the revenues from user charges. Usually this is linked to efforts to manage
infrastructure like roads in a more business-like way on a fee-for-service basis by an independently
managed agency. In the case of roads, it might involve a combination of (i) a dedicated road fund,
used only for rehabilitation and maintenance, through which user charges are channeled, and (ii) an
independent road board, representing stakeholders, to oversee the fund's management and ensure
accountability and transparency. While road funds are a good idea, the experience with them has been
mixed (Box 5-23).
Subsidies
Some countries promote services to the remote poor using price controls and/or cross-subsidies
between profitable and non-profitable routes. Only a few (for example Fiji) address more directly the
question of subsidy and have introduced service-franchising arrangements to support essential but
unprofitable services. Appropriately designed, these can be effective in controlling costs, providing
affordability for the poorest, and maintaining suitable standards of service. It is important to ensure
that the subsidy is properly targeted and that the corresponding funds are secured. With the subsidies
being explicit, not hidden, they can be weighed from time to time against the perceived benefits of the
subsidized services. Moreover, they can be phased out over time, as demand develops and
profitability improves.
Policy Principles 41
Box 5-23 Road funds
Road funds existed before, but interest in them grew following the World Bank's report Road Deterioration in
Developing Countries, by Harrell and Faiz (1988). This showed that poor maintenance had resulted in the loss of
15 percent of the capital invested in roads in 85 countries examined. The report gave rise to multi-donor
initiatives to address the underlying causes. Another key publication was the Commercial Management and
Financing of Roads (Heggie and Vickers, World Bank Technical paper No. 409, 1988). This suggested reform of
road management along more business-like lines on a fee-for-service basis, with four main building blocks: (i)
clarifying responsibility for roads as a basis for accountability; (ii) creating ownership by involving users in the
management of roads; (iii) securing an adequate and reliable flow of funds; and (iv) strengthening management
through sound business practices and accountability.
Introduced in the 1970s and 1980s (some in Eastern Europe came later), early road funds had the limited aim of
protecting road funding from budget cuts. Off-budget accounts were set, funded by earmarked general tax
revenues. Some financed all road expenditures, others only maintenance; some national/arterial roads, others
secondary or urban roads too. Some even funded public transport and safety enforcement. There were also
variations in arrangements for management and financial control. Most of these "first-generation" funds were
unsuccessful. They were characterized by weak legal protection, a perception that they diverted funds away
from other sectors, weak supervision arrangements and unsatisfactory day-to-day management, often by a road
agency with no incentive to pursue efficiency.
Second generation (2G) road funds were introduced in the 1990s. Mostly, in contrast with first-generation funds,
their aim was to "commercialize" roads, managing them as valuable assets in a more business-like way on a
fee-for-service basis. They generally had the following features: (i) revenues were mainly from fuel levies,
complemented by other tolls (ii) they tended not to require transfers from the government budget (iii) the tariffs
created an explicit link between what users paid for roads and the quality of roads that resulted; and (iv) the
revenues were deposited into a road fund managed and supervised transparently by an independent board.
Their advantages stem mainly from the link between the road tariff and effective maintenance. Users are more
willing to pay if they can see that it directly results in lower costs and that the funds are managed responsibly
and transparently in their interests.
Over the last twenty years, there has been a significant improvement in the condition of the road network in
many developing countries and, in part, this can be attributed to the introduction of road funds and the general
raising of awareness of the road maintenance funding issue. However, although there have been notable
improvements with the introduction of 2G road funds, underfunding of maintenance remains. There have been
examples of excessive government interference in the funds, and there have also been examples of significant
increases in maintenance funding by countries that have not introduced road funds. Clearly, government
commitment is crucial to the success of whatever approach is taken to fund road maintenance.
6 STRATEGIES FOR ACHIEVING OBJECTIVES
There is no simple way to describe how strategies should be developed and structured. They depend
on the objectives and policy principles, and the shortcomings to be overcome, and these differ from
country to country. Choosing the best strategy is much easier, of course, if the objectives and policy
principles are specified clearly. The steps required under each of the four main policy headings
(institutional, planning, operational, pricing) then become self-evident, as the examples in Table 6-1
overleaf try to show. But they also depend on the circumstances of the country in question, the
degree to which existing arrangements already comply with the stated policy principles, and the
practical and political difficulties involved in implementing the required reforms. In many instances,
studies will be needed to establish the best way from a number of alternatives. Consider the examples
shown in Table 6-1.
Alternative strategies for promoting economic growth might involve fundamental choices
between a planned approach to development--targeted government investments in infrastructure and
continued government involvement in facilities like freight centers that are commercial in nature--and
one that focuses more on corporatization and establishing an enabling environment for a private
sector response to demand. The government would need to examine in detail the consequences of
moves to corporatize railways, ports and so on: the funding of needed rehabilitation and upgrading,
the impacts on financial performance, the need for continuing support for passenger and other non-
profitable services, the regulatory environment for third-party access to assets, the safety implications
of allowing third-party operations, the implications for employees. The adoption of cost-based pricing
and a consistent approach to infrastructure cost recovery may have important implications for the
allocation of traffics, the profitability of services and cost inflation, which will all need careful analysis.
And the very need for this kind of policy analysis may require new skills and human resources that
should be planned for.
Alternative strategies for achieving poverty reduction also require careful analysis, to determine
priorities for infrastructure investments, establish mechanisms for funding, identifying opportunities
and incentives for private sector involvement, devising ways to strengthen community ownership,
promoting gender awareness and employment opportunities for women, and assisting communities to
respond to the economic opportunities that are opened up.
There are also many different ways of raising the quality of life and protecting public safety and
the environment. Targeted national road safety strategies have proved to be effective in
progressively reducing road deaths and injuries. Different approaches can be used to implement these
strategies (for example in managing commercial vehicle fleet safety.) An evaluation should be done of
the effectiveness of regulatory and enforcement approaches--corruption at weighbridges, for
example--and consideration could be given to alternatives involving the use of incentives and
penalties to modify behavior (for example in demand management, restructuring the vehicle fleet,
reducing overloading). These may require a review of the experience of other countries and the design
of pilot implementation schemes to test effectiveness.
Institutional strategies--for example to achieve efficient, effective and responsive public
administration--should also involve careful design and consideration of options. This might examine
different mechanisms for stakeholder involvement and oversight, transparency in planning and
performance monitoring, decentralization of functions, outsourcing of selected tasks and functions,
and the use of performance measures as a basis for improved accountability.
43
44
Table 6-1 Examples of strategies to achieve objectives
PREPARING
Objective Strategy1 Institutional Measures Planning and Investment Operational, Regulatory Pricing, Cost Recovery, Comments
Measures and Licensing Measures Taxation and Subsidy
Measures A
Key policy assumptions used Promote private sector Adopt consistent criteria for Promote competition; Cost-based pricing; improve NATIONAL
in these examples: participation; scale down public investments; remove unnecessary infrastructure cost recovery;
role of SOEs; separate investments to meet restrictions on market entry apply direct subsidies for
government's policy and threshold EIRR and FIRR and operations; tighten essential rural services
commercial functions safety and environmental TRANSPORT
controls
Promote economic growth and Make the country's Establish an Office of As input to the first Freight Identify and remove Develop guidelines and an Responsibility for assessing
improve the economy's freight transport system Multimodal Transport in the Forum, identify critical regulatory constraints implementation plan for progress under this strategy STRATEGY
efficiency and competitiveness more efficient Ministry of Transport's infrastructure bottlenecks preventing operators from establishing uniform, cost- could be assigned as a
Improve government's Secretariat and development needs; offering integrated based pricing of transport formal task to the FTAC
responsiveness to the Establish an independent prepare a draft Freight multimodal transport services and infrastructure
needs of freight Freight Transport Advisory Transport Infrastructure services Implement a policy of
consignors/consignees Committee to advise the Master Plan Revoke Regulation 6/1985 charging for externalities
Improve inter- and Minister on logistics matters Draft criteria and guidelines (Railway Law) granting state
multimodal transport Hold an annual Freight for private sector industries priority in
services Forum organized by the involvement in transport assigning railway capacity
infrastructure
Bring about a more FTAC Draft and seek comment on
economically efficient Eliminate restrictions on Strengthen requirements for an umbrella Transport Law
allocation of traffic private sector provision of public consultation on major eventually to replace the
between transport multimodal transport infrastructure projects laws currently governing
modes services Develop guidelines on roads, road transport,
railway transport, ports and
Ratify international treatment of unsolicited
maritime transport
agreements on multimodal project proposals
transport
Encourage the Privatize the two remaining Update the Tolled Outsource weighbridge Revise the Road Law to Road transport costs for
development of higher- state-owned road transport Expressway Plan and invite operations under renewable authorize road and bridge selected movements are
quality road freight and companies BOT bids for Phase I 2-year contracts with tolls sometimes used as a
logistics services Encourage an independent projects strengthened safeguards Restructure the Vehicle measure of performance,
Road Haulage Industry Bring forward Road/Bridge Implement the Transport Registration Fee to reflect but this fails to capture
Association Strengthening projects for Operator Safety Rating the pavement-damaging improvements in service
quality. Again, progress is
Decentralize responsibilities the declared Heavy Vehicle Scheme; revise the Road potential of vehicles
best assessed by
for management of sub- Network Law to make operators Implement the Road Vehicle representatives of users
national roads to provincial Outsource arterial road responsible for vehicles' Fuel Tax and rebate scheme themselves, for example the
governments maintenance planning and safety performance for non-transport users; FTAC
the Road Maintenance Revise criteria for operator allocate 65% of Fuel Tax
Management System under license renewal to receipts to provincial
tendered 3-year contract incorporate the SRS government road
administrations
Objective Strategy1 Institutional Measures Planning and Investment Operational, Regulatory Pricing, Cost Recovery, Comments
Measures and Licensing Measures Taxation and Subsidy
Measures
Key policy assumptions used Promote private sector Adopt consistent criteria for Promote competition; Cost-based pricing; improve
in these examples: participation; scale down public investments; remove unnecessary infrastructure cost recovery;
role of SOEs; separate investments to meet restrictions on market entry apply direct subsidies for
government's policy and threshold EIRR and FIRR and operations; tighten essential rural services
commercial functions safety and environmental
controls
Help the railway to Offer selected Railways Upgrade mainline rail freight Revise the Railway Law to Establish the Railway Railway performance is
exploit its intrinsic Corporation freight services capacity by implementing remove restrictions on Passenger Subsidy Fund to often measured in
advantage for long- to private concessionaires the World Bank railway foreign involvement in support continuation of operational terms, but the
distance freight traffic Allow private operators to rehabilitation project railway operations railway passenger services key indicators of interest
Reduce road/rail offer third-party railway Transfer petroleum tanker Draft changes to rules Establish separate here might be (i) the
transshipment delays freight services rolling stock to the Oil restricting third-party railway accounting and reporting proportion of freight carried
by rail and (ii) the financial
Establish the Railway Remove restrictions on Distribution Company service providers systems for railway
performance of the Railway
Authority to regulate private development of Close the remaining passenger services
Corporation
access to and operations road/rail freight interchanges uneconomic railway branch
using railway Privatize the Railway lines identified by the Hine
infrastructure Forwarding Company and Review
the Railway Property
Management Company
Approve the Railways 3-
Year Business Plan and
financial performance
targets for the remaining
business units of the
Railways Corporation
Overcome bottlenecks in Establish the Ports Authority Develop six new container Port Authority to improve Port charges to be Key indicators will be related
the ports system to manage gazetted wharves and invite bids for loading and unloading restructured to reflect costs to port productivity and
Encourage port services international ports on a their management productivity by 40% and Holding charges for cleared financial performance
to be more responsive to commercial basis Dredge channel to average ship clearance time containers to be increased
users' needs Relax restrictions on accommodate 15,000 dwt to 18 hours with 24-hour 200% Strategies
development of private port vessels working
terminals Extend the coastal railway Maritime Safety Authority
into North Port; invite bids and Customs Department to
for construction and achieve 24-hour working
operation of transshipment within 6 months for
facilities Achieving
etc
Reduce the proportion of Improve the accessibility Replace the Government Develop inter-island Invite tenders for six 3-year Allocate a guaranteed 25% Key indicators could be the
people in poverty of people in remote Shipping Service with wharves for all coastal inter-island shipping of the Regional Fund to rural proportion of the poor
regions franchised private services communities of > 1,000 franchises transport infrastructure served by formal Objectives
Establish an Office of Rural people Reduce annual registration Transfer committed road/shipping services
Transport in each provincial Develop 240 rural bus fees for buses on Class V subsidies under inter-island
transport administration terminals/stops routes shipping franchises to the
Assign responsibility for the Implement emergency rural Introduce temporary Regional Trust Fund
Regional Trust Fund to road rehabilitation program; licenses for informal
Provincial Councils guarantee all-weather transport services
access to all communities
served by existing roads
etc 45
46
Objective Strategy1 Institutional Measures Planning and Investment Operational, Regulatory Pricing, Cost Recovery, Comments
Measures and Licensing Measures Taxation and Subsidy PREPARING
Measures
Key policy assumptions used Promote private sector Adopt consistent criteria for Promote competition; Cost-based pricing; improve
in these examples: participation; scale down public investments; remove unnecessary infrastructure cost recovery; A
role of SOEs; separate investments to meet restrictions on market entry apply direct subsidies for
government's policy and threshold EIRR and FIRR and operations; tighten essential rural services NATIONAL
commercial functions safety and environmental
controls
Improve people's quality of life Cut the road accident toll Identify a lead agency in Revise road design Revise materials, criteria Increase road safety Indicators: trends in accident TRANSPORT
and protect public safety and government to guide the standards to meet the safety and procedures for driver program funding and severity rates
the environment more national road safety effort, requirements of all road training and testing; progressively to achieve
effectively prepare a national road users; carry out annual introduce graduated driver effective delivery of national
safety strategy with safety risk audits and safety licensing systems for novice action plan; and increase STRATEGY
ambitious but achievable rating surveys; retrofit low drivers; introduce points penalties for safety-related
performance targets and a cost protective features to system for safety-related offences to levels
national action plan, allocate reduce injury severity; violations; implement commensurate with
financial and human harmonize vehicle safety general deterrence-based achieving general
resources to implement the standards with international police enforcement and deterrence outcomes.
plan, and establish a Road best practice; and introduce education to ensure
Safety Council with traffic safety education into compliance with safety
membership from high-level the core school curriculum. standards and rules;
transport, health, education upgrade vehicle inspection
and other stakeholders; to and testing standards; get
direct and coordinate 80% of unsafe vehicles off
strategy implementation. the roads within 2 years;
make licensed operators
share responsibility for
safety performance of
vehicles and drivers;
introduce mandatory jail
sentences for accepting
bribes; and implement pre-
hospital care and victim
recovery services targeted
to high-risk corridors.
Improve air quality in Establish an Air Quality Unit Equip each provincial AQU Mandate annual emissions Channel all fines for Monitor air quality at key
urban areas (AQU) in the Ministry of with on-road emissions tests for all vehicles older emissions violations to locations; maintain audited
Environment and each testing equipment than 2 years provincial AQUs statistics on emissions tests
provincial administration Impound all vehicles failing
on-road emissions
standards; scrap
government vehicles failing
emissions standards
etc
1These are just examples for illustration, of course. In most cases, other strategies would also be needed to implement the objectives set out in the first column.
7 WHAT SHOULD THE NTS LOOK LIKE?
Too often, NTSs are full of feel-good statements that are hard to pin down. There is never likely to be
much useful public debate about strategies like "we plan to improve the road network so that people
can have access to more employment opportunities" or "air quality is a critical problem, so we plan to
introduce measures to lower levels of vehicle emissions." Too often, too, the strategy is all, but
objectives and basic principles are left unclear. A better approach would focus attention on key policy
choices, answering more fundamental questions like: Is the public sector effective in delivering
transport infrastructure and services? Is the regulatory environmental effective in promoting
competition, efficiency and service quality? Given that we all want the road network to be in better
condition, what is the best way of funding road maintenance and holding the road agency more
accountable for its performance in managing the network? Given that we all want better air quality,
what economic inducements, regulations and enforcement measures are likely to be most effective in
lowering emissions?
Again, this brings us back to fundamentals: What objectives are we trying to achieve? What
fundamental policy principles should guide our efforts? What shortcomings are we trying to overcome?
What strategies are likely to be the most effective? What are the most important first steps? And how
will we tell whether we have succeeded? Answers to these are the key features of a good NTS.
How do the NTSs reviewed for this report measure up? Unfortunately, they were not all drafted to a
consistent format, making comparison difficult. Some try to express a comprehensive strategy while
others do not, but limit themselves to specific transport modes or aspects of sector performance.
Some are able to presume broader government policies--for example on privatization, investment
criteria, environmental protection, procurement, and so on--while others have no such background
and have to state everything anew. And, most difficult of all, they address different readerships--by
no means do they all speak to the general public about all that will be done, and why, in the transport
sector.
Under these circumstances, the best that can be done is to highlight in general terms the pluses and
minuses--those areas where NTSs score well, and successfully address the issues outlined in this
report, and those that remain poorly dealt with or for which no policy or strategy is stated.
Figure 8-1 attempts this. Its main conclusions are that:
There is, too frequently, a tendency to focus on investment projects before considering the
contribution that could be made by alternative institutional, regulatory and pricing policy options
in trying to achieve economic efficiency and other objectives;
There is a tendency to avoid taking a comprehensive policy approach towards dealing with
poverty, safety and environmental issues--rather, these issues are addressed within the
confines of particular investment projects;
Sustainability--not just of the environment but also of most other strategies adopted in pursuit
of objectives--is not given enough attention, particularly in the application of pricing and cost
recovery policies.
In preparing their NTS, governments should use the cells of Figure 3-1 and Figure 8-1 as a checklist of
considerations to be taken into account when thinking about how particular policies can help address
shortcomings in relation to each of their defined objectives.
47
48 PREPARING A NATIONAL TRANSPORT STRATEGY
As for the appearance (format) of the NTS, no special structure can be recommended. It depends on
the target readership. As long as the intersecting elements of the matrix shown in Figure 3-1 are
addressed (for which the format shown is likely to be useful in illustrating the contributions made by
each element), it does not matter whether the strategies and plans of the NTS are structured
according to transport sub sector (which may interest managers of the separate ministries or
departments concerned), level of administration (of interest to national, regional and/or local
governments), transport task or policy issue (of interest mainly to those narrowly concerned with one
or the other).
8 MAKING THE NTS WORK AND MEASURING THE STRATEGY'S EFFECTIVENESS
8.1 Requirements for effective implementation
AN NTS is a plan to achieve stated objectives through a set of clearly defined strategies. If it is to be
effective, it must also set out:
Who is expected to do what in order to meet its aims;
The expected outcomes of decisions and actions;
The resources available;
Measures by which performance, and the outcomes, can be judged;
Procedures for monitoring performance and adjusting strategies as necessary.
Although these are the features of an Action Plan, they are an essential step in the process of sector
management nonetheless: a strategy is of little use without a plan for putting it into action. There are
several more columns to be added to the right of Figure 3-1, detailing the actions and the
responsibilities and arrangements for its implementation.
8.2 Measures of effectiveness
International Development Agencies, such as the World Bank, set performance measures in the
context of a log frame19 and/or monitoring and evaluation (M&E) framework for their projects. These
can be quite detailed, often requiring expert resources to measure baseline conditions and changes
that occur to a large number of variables during and after project implementation. In comparison, an
effective NTS, being more general in nature, needs just a limited number of simple, key indicators of
effectiveness for the most important objectives. Otherwise, performance can be unclear and
debatable. It is particularly important to know how the transport sector performs with respect to those
variables directly affecting transport users and the general public, that is, service frequency, transport
fares and tariffs, journey times and accident rates.
It is also useful--though mostly for internal purposes, (that is, within the relevant planning or sector
ministry)--to devise a set of measures or milestones for judging success in both policy and strategy
implementation. These would indicate, for example, whether selected policies (for example promoting
the role of the private sector, meeting a threshold rate of return for public projects, eliminating
unnecessary regulatory controls, achieving cost recovery for public infrastructure) have been
implemented as planned, and whether actions under a staged implementation plan for each strategy
have in fact been carried out.
8.3 Consultations and external scrutiny
Public relations skills among transport ministries in developing countries are often weak. They tend to
focus on projects, rather than outcomes. Projects are implemented with little public debate about
where they should be and what they should be achieving. Cash outlays are often simply accounted for
against physical progress on projects, and payments are usually made on the basis of inputs rather
than performance and outcomes. There is often room for improvement in the way in which the cost-
19A logical framework (log frame) is a matrix summarizing what a project intends to do and how, what the key
assumptions are, and how outputs and outcomes will be monitored and evaluated.
49
50 PREPARING A NATIONAL TRANSPORT STRATEGY
effectiveness of programs and activities is gauged. Arrangements for financial management and
reporting often do not provide an answer to the key question: Is the public receiving value for money?
A key aim should be to record the resources used in undertaking transport-related activities, so that
they can be weighed against outcomes. This should be of concern not just to government but to all
stakeholders with an interest in better transport and value for money from public funds: transport
service providers, freight forwarders, traders, road users, agricultural producers, industrialists,
importers and exporters, social/economic development agencies, NGOs, academia, the media and all
manner of people among the general public interested in good governance. Common concerns with
most oversight arrangements are that:
Stakeholders have no say in how their tax money is spent; priorities and criteria for the
allocation of funds are decided without reference to them
Stakeholders have no formal role in reviewing sector management performance, and can do
little about poor performance
The process of consultation, if there is any, is of limited effectiveness in strengthening oversight
and securing value for money in sector management
Performance reports are of little value to stakeholders interested in assessing whether they are
getting value for money; they are often inaccessible or are incomprehensible to the non-
technical; financial and management performance reports are used mainly within government to
account for cash expenditure and give no indication of efficiency or cost-effectiveness in
achieving meaningful targets
Little effort is made to listen to the public's needs, keep them informed of progress towards
objectives and get them involved in reviewing this; the media are not used effectively to secure
community support for management decisions.
The basic strategy should be to establish a system of independent oversight that subjects funding and
management decisions to external scrutiny. This independent scrutiny, facilitated by transparent
decision-making and reporting, would put pressure on the responsible transport agency to achieve
satisfactory performance. A free flow of information on management decisions, criteria and
performance would benefit all stakeholders, including the government: it would benefit the transport
agency and government, on the one hand, by facilitating better-informed decisions, and stakeholders
and the general public, on the other, by giving them confidence that their interests are recognized and
being pursued.
Making the NTS Work and Measuring the Strategy's Effectiveness 51
Figure 8-1 Broad assessment of coverage of NTSs for the sample reviewed
Objectives Policy Areas
Institutional Planning & Regulatory Pricing/Taxation/
Investment Subsidy
s
ontic no tne sn
sr fun rolstno itit mnoriv g
secto ortce mpeoc
eria onsti atioluger eryv in
la
atevir -s ng
ic
bl crittne criteriact nirev totc
safety/en guer ecor icrp/n
cost
ic/plbup pufo m go
vest estmenv oftne adjun
as ycli
in in po
of niz'n cli onsita verningog es ngtit reutc taxatiolado
ate stru m ydi esige
iv gul sg mecr ivtnec -seff
fra ter rat
Role garO Pub Pr Re Re fonE In Tari In In bsuS St
Economic growth/efficiency n.a.
Equity/poverty reduction n.a. n.a.
Quality of life
Safety/environmental protection
Performance rating: Generally good coverage
Sometimes adequately covered, often not
If covered, often done poorly
Rarely mentioned/addressed
n.a. Not usually applicable
ANNEX: COUNTRY NATIONAL TRANSPORT STRATEGIES REVIEWED
For this report, National Transport Strategy documents and policy papers were compiled and reviewed
for the following countries:
Australia Bhutan British Virgin Islands
Cambodia Canada Fiji
Finland Guyana Hungary
Iceland India (National Road Transport Policy) Jamaica
Kazakhstan Malawi New Zealand
Papua New Guinea (PNG) China South Africa
Tanzania Thailand
USA (National Freight Policy) Vanuatu Vietnam
53
54
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